Despite Regal Entertainment Group RGC offering an attractive yield of 4.1 percent, Loop Capital’s David W. Miller believes the stock is fairly valued at present.
Miller initiated coverage of the company with a Hold rating and price target of $22.
International Exposure
The analyst would prefer to be more constructive on the stock, if and when “management decides to diversify its revenue base overseas, and/or there is some sort of 'black swan' event which forces investors to favor defensive plays.”
Screen/Theater Count
Miller also noted that over the past five years, especially since David Ownby took over as CFO, Regal Entertainment has done a good job of right sizing its screen/theater count, in favor of higher margin theaters that can house an average of 12.8 screens, as compared to 12 screens three years ago.
The company has also favored theaters that are in high volume, high density walking areas in city centers.
“Being the #1 market share player in the U.S., and clearly having enviable buyer and supplier power, gives RGC a tremendous amount of negotiating clout when hammering out net rental arrangements with the Studio system,” Miller mentioned.
Lower Film Rent
Miller also pointed out that Regal Entertainment does a good job of keeping film rents low, with rents standing at 53.5 percent in 2015, lower than its competitors.
This trend continued in H1:2016, with rents standing at 54.3 percent, again lower than its closest competitors.
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