Hollywood Strike Poses Key Risk To These Stocks—Even If Barbie And Oppenheimer Smash The Box Office

Topline

Several entertainment stocks faced significant analyst downgrades this week amid the Hollywood actors and writers’ unions ongoing strikes, showing the buzz about movies during the opening weekend of highly anticipated films Barbie and Oppenheimer is by no means a cure-all for the sector.

Key Facts

Bank of America analysts led by Sherif El-Sabbahy downgraded their stock recommendation for equipment rental company Herc Holdings from a buy to a sell in a Friday note, predicting the strike, which sent Hollywood production to a standstill, will send sales from Herc’s crucial entertainment rental segment down 75% year over year during 2023’s third quarter.

On Wednesday, JPMorgan analysts led by David Karnovsky lowered their rating for shares of movie chain Cinemark from buy to hold, citing the “overhang” of the Hollywood walkout, ominously warning the walkout will “limit upside regardless of whether the box office outperforms near term.”

There’s “increased risk that the remainder of the 2023 film slate underperforms due to difficulties for studios promoting shows,” Goldman Sachs analysts Stephen Laszczyk and Antares Tobelem wrote last week.

Profit and revenue estimates at Cinemark and film technology giant Imax for this year and beyond “do not yet fully incorporate film-delay risks,” according to the bank.

Since Hollywood actors began their strike last Thursday, Imax (down 9%), Herc (down 7%), Cinemark (down 5%) and AMC (down 1%) have each underperformed the S&P 500’s 1% gain during the period.

Larger entertainment stocks haven’t noticeably moved over the last week, but Paramount and Disney are two of the 12 worst-performing stocks on the S&P 500 since the writers’ strike began May 2, according to FactSet data.

Contra

There are still winners emerging from the turbulent time in Tinseltown. Loop Capital identified Netflix as the entertainment giant most likely to emerge from the strike relatively unscathed due to its “competitive advantage” of backlogged content. Shares of Comcast Warner Bros. Discovery, the respective distributors of Barbie and Oppenheimer, are up more than 5% apiece over the last month. Mattel, the manufacturer of Barbie toys, has enjoyed a 20% surge in its stock price over the last month thanks in large part to movie hype.

Key Background

Barbie raked in $22 million on its first night in theaters Thursday, setting it up to land one of the largest opening weekends of the year (Oppenheimer brought in $10 million Thursday). Among the most-anticipated movies of the year, internet users quickly latched onto the utterly opposite nature of the films scheduled for the same release date, one a light-hearted biopic on a toy and the other a biopic on the nuclear scientist who helped create atomic bombs, which killed more than 200,000 people.

Barbie, Inc: How A $3 Toy Inspired A Multi-Billion-Dollar Dream World (Forbes)

Netflix Stock Hits 17-Month High As Analysts Forecast ‘Competitive Advantage’ From Hollywood Strike (Forbes)

Hollywood Strike Dims Hope of Barbenheimer Bump for Movie Stocks (Bloomberg)

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