Carmike Cinemas (NASDAQ: CKEC) is the latest in a string of national theater chains reporting record results in the recently ended period. With 3D and IMAX ticket sales boosting its box office numbers and recent trends in the endlessly high-margin concessions segment, theaters have been a great business to be in lately. One thing particularly interesting about Carmike in particular is the company's ability to drive actual attendance, not just ticket sales, higher. Carmike's recent success in both existing and newly added screens helped the company achieve higher admissions per screen along with higher attendance figures. Is this the best bet in theater chains?
Record-making
Led by a 500-screen acquisition spree, Carmike Cinemas posted record figures for revenue, operating income, and adjusted EBITDA -- up 18.2% to $171.8 million, 14.9% to $19.2 million, and 16.5% to $33.7 million, respectively.
In the middle of November, Carmike closed its acquisition of nine entertainment complexes and 147 screens from regional player Muvico. Carmike paid $31.75 million. Through this acquisition, Carmike has greatly expanded its presence in the state of Florida, where it had previously held just 13 theaters. Also of note in the purchase is the addition of Carmike's first theater in California -- a market with tremendous growth potential and likely a large part of management's ambitious 300-location, 3,000-screen goal.
All in all, box office admissions rose more than 16%, while concession revenue gained 22%. Concessions and other sales per patron hit an all-time high for the company at $4.29.
Fundamentals
Clearly, Carmike is performing with the best of the theater chains (and in some ways outperforming). The only problem is that the market seems fully aware of its prospects going forward. Compare Carmike to industry giants Regal Entertainment (NYSE: RGC) and AMC Entertainment (AMC -2.01%). Carmike Cinemas is a good bit smaller and has a much more appealing growth runway via both market-share grabs and day-to-day operations (like concessions), but it trades at a far richer valuation -- nearly 25 times forward earnings -- because of it.
Regal trades at under 15 times earnings, while AMC is at 14.7 times earnings. The latter is of particular interest as AMC debuted on the public markets in December 2013 and has gone nowhere but up -- often a symptom of IPO hype. But the company, again larger than Carmike, is far more reasonably valued even while fresh out of the gates.
On an EV/EBITDA level, the story is similar. Carmike trades at a more appealing 8.58 times its 2013 adjusted EBITDA. Regal trades at 8.86 times, while AMC is the richest at more than 10 times. Carmike Cinemas' relative lack of debt (about $310 million) and decent cash hoard of $140 million makes for a fundamentally more appealing company. This frees up Carmike's hefty cash flows and allows for a brisk pace of expansion. The P/E ratio is not the be-all and end-all metric, and while it is certainly not a cheap stock, Carmike is one of the industry's strongest performers, offered to investors at a reasonable price.
