Marcus Corporation Appears to be Undervalued, but More Catalysts are Need to Initiate a Bull-Run

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Written By Kevin MacDonald
  • The Marcus Corporation’s stock has fallen by almost 30% Year-to-Date, reaching a level last seen during the COVID-19 pandemic.
  • The company’s real estate assets are undervalued by the market, estimated to be worth $15 per share.
  • However, there are no catalysts in sight to unlock the value of the real estate assets.
  • Investors will likely have to wait until 2025, when a better film slate will likely improve sentiment towards the sector.

Marcus Corporation stock has dropped significantly, but without triggers to realize its value, a bullish trend may not happen until 2025, when the film industry potentially improves. Investors will need to exercise patience as the current environment offers little hope for immediate gains.

Company Overview

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Founded in 1935, The Marcus Corporation operates both movie theatres and hotels. Marcus Theatres is the fourth-largest movie exhibitor in the U.S., with 993 screens in 17 states, while Marcus Hotels & Resorts manages 16 high-end properties.

The company’s business mix has shifted post-COVID, with revenues now split more evenly between theatres and hotels, but earnings remain under pressure due to weaker theatre attendance.

The New Normal in Movie Attendance

Movie attendance has stabilized at approximately 80% of pre-pandemic levels. The rise of video streaming services and lingering public health concerns suggest this is the new normal, affecting earnings potential.

Revenge Travel Supports Hotels

Despite struggles in the theatre segment, MCS’s hotel business has benefited from ‘revenge travel,’ pushing industry revenues above 2019 levels. However, this hasn’t fully offset the theatre business’s decline, with overall revenues at 89% of 2019 levels and operating income significantly lower.

Q1 Performance and 2024 Outlook

MCS’s Q1 fiscal results were disappointing, with revenues down 9.1% year-over-year and an increased operating loss. The weak performance was attributed to a poor film slate caused by Hollywood labor strikes.

The 2024 box office is also tracking significantly below the previous year, casting doubt on a recovery in the near term.

Valuation Underpinned by Real Estate

MCS’s real estate, particularly its ownership of theatre and hotel properties, underpins its valuation.

The company owns 2,406 hotel rooms and 993 theatre screens, with estimated values of $385 million and $794 million, respectively. Combined, these assets are estimated to be worth about $1.2 billion, or $15 per share.

However, the high-interest rate environment has stymied real estate transactions, limiting potential unlock value.

Convertible Bonds and Valuation Impact

MCS has $100 million in convertible notes due in September 2025, converting to equity at $11.01 per share. This impacts the valuation, potentially diluting shares if converted, but also supporting the company’s balance sheet during tough times.

Shares are Undervalued

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Marcus Corporation’s shares are undervalued based on its real estate assets, but without immediate catalysts, the stock is unlikely to see significant appreciation until at least 2025.

Investors must be patient as the current environment, including weak theatre attendance and frozen real estate markets, offers little immediate upside. Thus, maintaining a hold rating is prudent given the circumstances.


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