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Cinemark vs. Regal

By Bradley Seth McNew – Feb 5, 2014 at 4:00PM

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Movie production companies have had a great year, and appear to have another good one coming. Theaters are a good way to ride the coattails of this success. Of the two largest theater owners in the U.S., which is the better investment?

Disney, with over $300 million in revenue just from the theater screenings of the film Frozen, is an example of how movie production companies have had a great year in 2013. With the pipeline stacked, high-grossing theater releases should continue in 2014. One great way to bet on the future success of the movie industry is to invest in the theaters that screen those megahit movies. The two biggest companies in this space are Regal Entertainment Group (NYSE: RGC) and Cinemark Holdings (CNK 0.30%).

Price and yield
Regal Entertainment Group operates motion picture theaters in the United States, including Regal Cinemas, United Artists theaters, and Edwards cinemas. It owns and operates 576 theaters, which includes over 7,330 screens. For value investors looking to find the cheaper stocks that will bring them income, Regal is the clear winner. 

With a 4.90% yield, Regal Entertainment is a dividend-paying stock that looks good in a long-term portfolio. The company is not just a good dividend income pick--with stable earnings history and a relatively low P/E multiple of 17.35, the company's share price still holds potential for more growth. The company's stock has done well recently, beating the S&P 500 with an increase of 37% in 2013 and 60% over the last two years in a steady climb.

Cinemark Holdings has a dividend yield of 3.10%, which is still a good payout to investors even if it's not as high as that of Regal. However, a P/E multiple of 21.5 does make this stock more expensive than Regal. Over the last two years, Cinemark stock has risen 52%.

Even with Regal's share price rising over the last few years, the company still has growth potential. Regal's income grew over 200% in 2012, from $40.3 million in 2011 to $144.8 million in 2012. Investors should be watching to see what this company will report in its year-end earnings release for 2013. For the most recent quarter reported, revenue for Regal was higher than the industry average and increased 17.3% over the same period last year. Because of this, there is reason to think that the full year release will contain another big gain. 

Even though the company's stock price has already appreciated so much recently, its cash flow has also increased by over 86% in the last year reported. With these increased cash flows, the company should have the liquidity and stability to continue growing and still continue to reward shareholders with high dividends.

Profit margin
There is one area of concern for Regal, and that is with the company's relatively low profit margin. With a profit margin of just 5.6%, this company is below industry averages in this metric. While the company has strong and growing earnings, the ability to retain those earnings as profit will determine how successfully the company can continue to reward shareholders.

Cinemark wins in this category, but not by much. The company had a profit margin of 6.08% over the last year, just slightly higher than that of Regal. However, with a P/E multiple of 21.5, Cinemark is priced higher than their small advantage in profit margin warrants.  

Which is the better investment?
Summing up the score card for each company, Regal comes out as the winner on price and dividend yield. Cinemark wins on profit margin, however. Regal's profit margin is up since the same period last year, though, which is a good sign that the company is proactive in strengthening its operations. With what should be a big gain on revenues reported on Regal's 2013 earnings release that is expected in mid-February, this company looks to be the overall winner.  

Fool contributor Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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