Wedbush Previews Regal's Q3 Box Office, Highlights 2 Key Drivers

The brokerage's bullish thesis is based on the several initiatives of the company that will allow it to gain market share versus its peers and grow its EBITDA. Apart from closing underperforming theaters, Regal is expanding its luxury recliner seating, alternative concessions and focusing more on its Premium Large Format screens.

"We think Regal performed in line with the industry box office of up 11 percent in Q3 or better, driven by its balanced mix of IMAX and proprietary PLF screens, and its balanced urban-suburban footprint given the mix of both family-friendly and fanboy films released in the quarter," analyst Michael Pachter wrote in a note.

Related Link: Wedbush On Theater Stocks: Favors AMC, Regal Over Carmike, Cinemark

Pachter assumes 4 percent rise in attendance per screen and average ticket to be up 7.2 percent, supported by price increases on recliners implemented between 3–12 months after opening and more premium and 3D films over the prior year.

The analyst, however, cut his fourth quarter box office expectations to down 8 percent, partially offsetting the increase in third quarter for the full year.

That said, Pachter increased his FY:16 estimate for revenue to $3.16 billion from $3.14 billion and adjusted EBITDA to $603 million from $600 million, while maintaining EPS estimate of $0.97.

The analyst also raised his FY:17 estimates for revenue to $3.38 billion from $3.35 billion, while maintaining estimates for adjusted EBITDA of $697 million and non-GAAP EPS of $1.32.

"We think Regal is poised for growth as it improves its footprint, and expect continued growth in high margin concessions per cap, even as admissions revenues decline over the next two quarters," Pachter added.

At time of writing, shares of Regal Entertainment were down 1.2 percent at $21.38.

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