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The Marcus Corporation (MCS), Regal Entertainment Group (RGC), Marriott International Inc (MAR): Movie Theaters and Hotels for an Uncertain Future

The Marcus Corporation (NYSE:MCS) offers a decent dividend payout and a resilient business model. This company owns both hotels and movie theaters, so it benefits from diversification. Marcus has a limited geographic footprint, with many of its properties in the Midwest, so it has room to expand. The company has also invested in modern theater technology, such as 3D-capable screens. Marcus could be a better long term pick than a company that specializes in either hotels or movie theaters.

The Marcus Corporation (NYSE:MCS)

Resilience

Movie theater customers frequently complain about high ticket prices, but a movie may still cost less than other entertainment options. An individual who might stay at an expensive resort during good economic conditions might stay in town and watch a movie during bad economic conditions. A resort hotel might achieve higher profits during a boom, but a movie theater chain might actually do better in a bust.

Fiscal 2009 results from Regal Entertainment Group (NYSE:RGC) and Marriott International Inc (NYSE:MAR) showcase the effects of a deep recession. Regal reported 7.6% higher revenue in 2009, and its total revenue increased to $766 million. In addition, Regal noted that 2009 was a good year for the movie industry, in general. 2009 didn’t go so well for hotels. Marriott reported -15% revenue growth for the year, and its income shrank from $359 million in 2008 to -$346 million in 2009.

The Marcus Corporation (NYSE:MCS)’s fiscal 2009 results show that diversification did provide some downside protection. The company posted 3.3% overall revenue growth for the year, although its net income dipped 16%. The company’s hotel business reported 10.1% lower revenue per available room (REVPAR), but its movie business reported 18.9% revenue growth.

Dividends

The Marcus Corporation (NYSE:MCS) offers a substantial, and still sustainable, dividend. Inverting a P/E ratio gives a company’s earnings yield. A company that has a 15 P/E has an earnings yield of 6.67%. Dividing a company’s dividend yield by its earnings yield gives the company’s payout ratio, which is the percentage of income that the company distributes to its shareholders each year. Marcus’ 2.7% forward dividend yield and forward P/E of 15 produce a forward payout ratio of 40%.

Marriott International Inc (NYSE:MAR)’s dividend also looks sustainable, but it’s smaller. Marriott has a 1.7% forward dividend yield and a forward P/E of 16, which results in a forward payout ratio of 27%. Regal Entertainment Group (NYSE:RGC) boasts a bigger dividend than the hotels, but this movie theater chain’s payout ratio looks very high. Regal has a 5% forward dividend yield and a forward P/E of 16, which produces an 80% forward payout ratio.

Book Value

Marcus also wins the book value comparison with Regal Entertainment Group (NYSE:RGC) and Marriott International Inc (NYSE:MAR). Only one of these companies has a positive book value right now. Marcus has a book value per share of $11.19, and its share price was $12.51 at the end of the day on June 25, 2013. Regal Entertainment Group (NYSE:RGC) has a book value per share of -$4.55, and Marriott has a book value per share of -$4.45.

Latest Results

The Marcus Corporation (NYSE:MCS) posted a net loss this quarter because of items, but the company still achieved top-line growth because its hotel business performed well. Marcus reported 1.7% overall revenue growth for the third fiscal quarter of 2013, and its hotel segment reported 12.3% revenue growth. The company recorded a -$2 million impact because of a lawsuit and impairment costs, which resulted in -$1.37 million net income for the quarter.

Marriott International Inc (NYSE:MAR)’s results show that the hotel industry has recovered from the recession, and conditions look more favorable now. This hotel chain reported 14.9% higher sales and 30.8% higher income for the quarter. Marcus does business in 11 states while Marriott has hotels throughout the world, so Marriott’s North American results could provide a closer comparison. Marriott International Inc (NYSE:MAR) reported 5.8% higher REVPAR for the quarter, while Marcus reported 10.7% higher REVPAR.

The Marcus Corporation (NYSE:MCS) explained that its movie segment faced a tough comparison this quarter because it had more popular movies available last year. Movie theaters may have also faced a difficult market this spring in general. Regal Entertainment Group (NYSE:RGCreported -6.1% revenue growth and -51.4% income growth for the quarter, and the theater chain described the overall business environment as challenging.

Takeaway

Marcus’ combination of movie theaters and hotel properties could perform in a wide variety of economic conditions, which is very important for a dividend stock. The Marcus Corporation (NYSE:MCS)’s third quarter didn’t go so well, but a few hit movies could put this company in a much better position. This theater and hotel owner also classified some major recent expenses as items, so its margins could improve. A weak third quarter may mean a good deal on this stock.

The article Movie Theaters and Hotels for an Uncertain Future originally appeared on Fool.com.

Eric Novinson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Eric is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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