2 reasons why Imax and Cinemark were downgraded to 'sell' by Goldman as movie theaters attempt a comeback

• Movie theater stocks Imax and Cinemark received a downgrade to "Sell" by Goldman Sachs on Wednesday.
• The bank gave two reasons why the movie theater business could face big headwinds going forward.
• Shares of Imax and Cinemark both fell by as much as 5% in Wednesday's trading session.
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Shares of movie theater operators Imax and Cinemark fell as much as 5% on Wednesday after Goldman Sachs downgraded both to "Sell" from "Neutral" in a Wednesday note. The note comes amid an epic surge in reddit-favorite AMC Entertainment, which is not covered by the bank.

The bank gave two big reasons why it sees headwinds going forward for the movie theater industry, namely shortening theatrical windows and growing alternative distribution methods for new movies.

The theatrical window for new movies, or how long until a movie is released on DVD, has shortened from 5.7 months in 1997 to 2.7 months in 2019, according to Goldman, adding that recent press reports suggest the theatrical window will shorten to a 17-30 day window from about 45 days for select movies. "A shortened home video window could negatively impact theatrical attendance," Goldman said.

Compounding the worries for movie theater operators is the recent rise in streaming new movies as they are simultaneously released in theaters. This trend was catalyzed by the pandemic as film studios were sitting on a slate of movies they couldn't release in theaters. While more movies will likely return to the theater as the pandemic subsides, consumer behavior likely will not, setting up more upside for original content developed on streaming platforms, Goldman explained.

"We see limited upside to their share prices relative to the rest of our coverage universe and expect the domestic box office recovery to be more limited than what is currently being priced in," Goldman said.

The bank said that the shift in consumer behaviors over the past year will only add to the ongoing secular decline in movie-going, according to the note.

"We believe that the closure of theaters during the pandemic may have accelerated the secular decline in attendance, hamstringing the box office recovery back to pre-pandemic levels," Goldman said.

Goldman lowered its 12-month price target to $19 and $18.60 for Cinemark and Imax, respectively, representing potential downside of 19% and 13% from current levels.