Are there any investors left who like theater stocks? Not judging by the data in Motley Fool CAPS. I think that’s a mistake. To me, theater stocks look like an interesting and potentially lucrative way to play the ongoing comic book movie boom.
So why aren’t other Fools interested?
Box-office results are notoriously difficult to predict. Worse, as the following chart shows, the end of the summer movie season takes a huge toll on the major chains:
Fall isn’t a good time at the theater. Source: Box Office Mojo.
Think of it like retail. Just as Black Friday is huge for sellers of toys and electronics gear, May to July is a crucial time for theater operators. Business has been good lately, thanks in large measure to the increasing popularity of comic-book movies.
For example, Iron Man 3 led the U.S. box office to an astounding $1.46 billion in total receipts, up nearly 24% year over year. This month hasn’t been as a fruitful: Domestic theater grosses aren’t even a fifth of seasonal norms. As of this writing, horror flick Insidious: Chapter 2 leads the way with just $41 million at the U.S. box office.
Coming soon to a broker near you …
Nonetheless, theater chain AMC has announced plans for a public offering. The company will join Carmike Cinemas, Inc. (NASDAQ:CKEC), Cinemark Holdings, Inc. (NYSE:CNK), and Regal Entertainment Group (NYSE:RGC) among the list of publicly traded movie houses. Which stock offers the greatest opportunity? Let’s review:
|Stock||CAPS Stars (Out of 5)||Theaters / Screens||Estimated 5-Year Earnings Growth|
|AMC Entertainment||Unavailable||344 / 4,988||Unavailable|
|Carmike Cinemas||**||245 / 2,476||12%|
|Cinemark Holdings||***||504 / 5,794||15%|
|Regal Entertainment||*||577 / 7,343||1.3%|
Sources: Motley Fool CAPS, Yahoo! Finance.
Cinemark Holdings, Inc. (NYSE:CNK) gets Fools’ highest average rating. We don’t know how they’d rate AMC since there’s been no offering of stock (yet). But even if there were, I doubt investors would give AMC the nod. Why? Chinese owner Dalian Wanda Group plans to maintain tight control of the business via B class shares with superior voting power.
Which brings us back to Cinemark Holdings, Inc. (NYSE:CNK). I, too, like the stock, for the following three reasons:
1). Good footprint with global prospects. Cinemark Holdings, Inc. (NYSE:CNK) screens films both inside and outside the United States. Indeed, according to the company’s press materials, 172 of its locations and 1,360 of its screens are spread across 13 Latin American countries. Global diversity should help smooth results.
2). A fat dividend. Yahoo! Finance pegs Cinemark Holdings, Inc. (NYSE:CNK)’s dividend at 3.2%, a nice yield that should help investors sustain market-beating results in the years to come.
3). A strong dividend history. Payouts can help smooth the bumps and bruises that come with investing in a business that’s seasonally dependent, as theaters are. While Regal Entertainment Group (NYSE:RGC) pays a higher yield as of this writing — 4.6%, specifically — Cinemark has an uncommonly good record for consistently meeting its dividend obligations.
Finally, I also like the theater business more now than I have in years past. More films are going digital, and theater conversions are well under way. Licensing deals with the likes of RealD and IMAX allow for higher ticket prices. And, of course, the comic book movie boom means bigger crowds paying more per ticket. All of it should add up to the 15% average earnings growth analysts are expecting, and possibly much more.
The article 1 More Surprising Way to Profit From the Comic-Book Movie Boom originally appeared on Fool.com and is written by Tim Beyers.
Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn’t own shares in any of the companies mentioned in this article at the time of publication. Check out Tim’s Web home and portfolio holdings, or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends and owns shares of IMAX.
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