Regal Entertainment: 2 Thumbs Up

Summary

  • Publicly traded movie theatre stocks are one of the few beaten-down areas of the market.
  • With the market at all-time highs, the only companies near 52-week lows are those facing disruption — or the perception of it.
  • Regal Entertainment strikes the healthiest balance of the big three, but there are trade-offs.

It is certainly hard to bottom-fish with the market at all-time highs, but the cinema subsector is one of the few that might present an opportunity, given that the major publicly traded players — AMC Entertainment (AMC), Cinemark (CNK), and Regal Entertainment (NYSE:RGC-OLD) — trade near 52-week lows. In today’s market, the only industries trading down are those that are undergoing (or have the perception of) massive disruption, and the theatre business is one of them. We’re coming off several solid years of great box office performance in the United States (5.2% annual from 2014-2016), and expectations are much lower for the next several years. Still, equity pricing appears favorable, and I can see why investors might be willing to take the contrarian approach and take the long side. Given little opportunity for differentiation at a local level, which of these three makes the most compelling choice for investors that want exposure?

Business Overview, Industry Challenges

Regal Entertainment has the highest current dividend yield (4.56%), and is likely the company that interests retail investors the most as a result, so I’ve framed this research from the perspective of this truly is the best choice. The company operates 7,262 screens, the vast majority of which are located within the United States (handful in U.S. territories). Regal Entertainment controls 20% of the U.S. box office, and has the second largest domestic market share (trailing only rival AMC Entertainment). This is where investors come to the first investment decision: If you’re looking for a solely domestic play, Regal Entertainment is the way to go. AMC Entertainment has expanded into Europe via the Odeon acquisition, and CinemarK trumpets their Central/South American exposure as a means of growth. Keep in mind that both Latin American and European are expected to see higher levels of box office growth, which is going to see these segments post higher earnings. The United States remains the top market, particularly for

This article was written by

Michael Boyd profile picture
18.8K Followers
Compelling income and growth plays in the energy sector.

Author of Energy Investing Authority

Top 1% Analyst According to TipRanks

I have a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, I am a full-time investor and "independent analyst for hire" here on Seeking Alpha.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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