Looking to add some fun and entertainment into your portfolio? Maybe owning a movie theater would help. Movie-makers are betting big this year to attract the crowds, with 50% more big blockbusters coming out this summer. Twenty-two big-budget movies are scheduled to come out, in fact. The Wall Street Journal thinks that there may even be a “glut this summer” in blockbusters. Michael Lynton, chief executive of Sony Pictures Entertainment, summed the summer movie environment up by stating that:
“It’s a scary summer because it’s like walking through the Himalayas when I see the gigantic movies coming in.”
Iron Man 3 has already experienced one of the most successful openings of all time. So, what’s the best way to capitalize from a potential pick-up in movie-goers this summer?
Buy a theater?
Regal Entertainment Group (NYSE:RGC) is the nation’s largest movie theater chain, operating over 500 cinemas in 38 different states. Regal Entertainment Group (NYSE:RGC) has also been prepping for a pick-up in attendance, recently completing an acquisition of 43 theaters to add 513 screens. Regal Entertainment Group (NYSE:RGC) really needs an increase in attendance, as revenues and earnings haven’t been very pretty recently:
The company is trading at around 22 times its earnings and 16 times its forward earnings, offering investors a whopping dividend yield at about 4.70%. The problem with this attractive dividend yield, however, is that it is only attractive on the outside.
Digging deeper, we can quickly conclude that paying a $0.84 dividend out of only $0.78 earnings per share is unsustainable for the long-term. Even looking forward to future earnings estimates of $1.09 per share, the payout ratio is still high at 77%. The company’s track record isn’t that great, either, after the company cut its dividend by 40% in 2009.
While Regal Entertainment Group (NYSE:RGC) looks risky, there are other companies that do business with theaters like Regal Entertainment Group (NYSE:RGC) that will also profit from a successful summer at the box office.
An old audio king looking to adapt to the times
Building on already-established agreements to install its Atmos sound system on over 200 screens globally, Dolby Laboratories, Inc. (NYSE:DLB) most recent 20-screen deal involves Regal Entertainment Group (NYSE:RGC). Regal’s chief purchasing officer, Rob Del Moro, explained that:
“We’re all familiar with the evolution of image clarity that came with digital cinema. Now, Dolby Atmos can provide greater definition and dimension to moviegoing as sound moves around the auditorium with precision placement to match the action as the filmmakers intended.”
Dolby Laboratories, Inc. (NYSE:DLB) Atmos was installed on 20 of Regal’s RPX (Regal Premium Experience) big-screens right in time for the new “Superman” blockbuster, Man of Steel. Dolby Laboratories, Inc. (NYSE:DLB) has secured about 45 titles and growing for its Atmos technology since it debuted a few years ago with the film Brave, and it will be featured in more blockbusters this summer including The Wolverine and Monster’s University. Atmos is being utilized internationally as well, with the largest circuit in China, Wanda Cinemaline, opting to make it the standard audio system for its “X-Land” big screens.
While Dolby Laboratories, Inc. (NYSE:DLB) doesn’t pay a dividend, the company is as financially strong as can be:
Having no debt and more cash than liabilities is impressive. Perhaps even more impressive, the company sports a current ratio above 4. Before we get too excited, we must also recognize that Dolby Laboratories, Inc. (NYSE:DLB) has recently been experiencing problematic earnings and revenues as well.
Dolby Laboratories, Inc. (NYSE:DLB) needs to get in on the digital train and jump ship from its more traditional bread-and-butter businesses involving PCs and DVDs. Management seems to notice, however, making new technologies like Atmos look encouraging for the company’s future earnings. Not everyone is as optimistic, however.
Is Atmos really nothing special?
In an interview with Pocket-lint, IMAX Corporation (USA) (NYSE:IMAX)‘s chief technical officer Brian Bonnick explained that Atmos was simply a “new mixing standard whereby through what they [Dolby] call ‘objects’ they can originate a source of the sound from a specific location within the theater by adding more loud speakers into the theater.”