Operating movie theaters already was challenging before the novel coronavirus became the full-blown COVID-19 pandemic. Hopes had been great that the summer months would mark the return to theaters, as the public was into the reopening of the economy. A surge in COVID-19 cases now threatens the reopening of theaters, beyond what had been a mid-July expectation.

Credit Suisse issued a scathing industry downgrade for movie theater chains on Monday. With the COVID-19 cases surging in states like California, Florida and Texas, the firm pointed out that these are also the top three states for theaters as they account for 35% of the U.S. box office.

While New York was the fourth-largest state by U.S. box office at 6%, and theaters were included among businesses that can reopen on June 24 in Phase 4, Credit Suisse now assumes a much softer return for the box office.

Credit Suisse’s Meghan Durkin indicated that it would not be surprising if the studios now take an even more cautious approach by pushing back films that were set to debut. The releases of both “Tenet” and “Mulan” have been pushed back into August, and these could help create reopening delays because there might not be enough movies to bring people into theaters even if the cases come back under control.

The total box office target for 2020 has been reduced to $4.6 billion from $5.1 billion, which would take the year down to −60% from −55% or so. This assumes that consumers will be slow to return over fears of the virus, even if theaters are allowed to open. For later in the year, Durkin takes a more cautious stance around the 2020–2021 flu season, as it is unlikely there will be a widely available vaccine by then.

AMC Entertainment Holdings Inc. (NYSE: AMC) was downgraded to Underperform from Neutral, and its target price was slashed down to $2 from $4. The prior close was $4.18, implying more than 50% downside in the shares.

The firm still assumes that AMC will be successful in its bid to exchange $2.3 billion of subordinated debt for a combination of new second-lien debt and some common stock. That should allow for enough liquidity through March of 2021, if theaters were to remain closed, but Durkin’s team sees more risk to AMC’s business model if there is a slow recovery.

Cinemark Holdings Inc. (NYSE: CNK) was downgraded to Neutral from Outperform. Its target price cut to $13 from $20 still implies 14% upside from the $11.39 prior closing price.

Unlike on AMC, Durkin continues to view Cinemark positioned well to endure this crisis, with ample liquidity into late 2021 even if theaters remain closed. However, there is a concern about its exposure to California and Texas because those two markets combined account for 42% of Cinemark’s total U.S. movie screens. Another concern is 17% of its prior earnings before interest, taxes, depreciation, and amortization came from Latin America, where COVID-19 cases are growing exponentially.

Shares of Cinemark were actually up 2.7% at $11.70 on Monday, while AMC was ignoring the “strong sell” verbiage with a 2% gain to $4.26.

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