Taking Advantage Of Weakness In Regal Entertainment Shares

It’s about time Regal Entertainment Group RGC paid a special dividend, and investors can take advantage of it, according to Loop Capital Markets.

The firm upgraded Regal Entertainment Group from Hold to Buy and raised its price target from $23 to $25 Tuesday.

“The core reason for this ratings change is the anticipation of a special dividend to be paid to shareholders, if not sometime around [the fourth quarter of] 2017, then at some point in the [first half of] 2018,” Loop Capital Markets Managing Director David Miller said in a note.

Knoxville, Tennessee-based Regal hasn’t paid a special dividend since December 2014, “but the ingredients are there for the special to take place, in our opinion.”

The movie theater chain’s stock has dropped 10.2 percent in the last 15 weeks and makes sense for going long, Miller said.

A Bonus Every 2 Years?

Regal has typically paid out a special dividend once every two years, according to Loop Capital.

The company has $408.8 million in cash on its balance sheet now, and Loop is projecting $318.8 million in free cash flow to be generated in 2017, Miller said — leaving a potential $730 million in cash by the end of the fiscal year.

“As such, it would not surprise us to see something on order of [the] magnitude of a $1/share special dividend sometime in the next six to 12 months, and so we believe cumulative return investors should be positioning portfolios appropriately.”

The cash flow projections for Regal depend on success at the box office and a 3.6 percent increase in admissions, Miller said.

Potentially lucrative titles coming to theaters in the balance of 2017 make that growth number attainable, the analyst said.

They include “Alien 5,” “Pirates of the Caribbean 5,” “Justice League,” “Transformers 5,” “Star Wars: The Last Jedi” and “Blade Runner 2049.”

Miller didn’t address the apparent deluge of sequels coming out of Hollywood in Tuesday’s note.