Prior to its 4Q07 earnings report last Thursday, shares of Regal Entertainment had already recovered from the sharp sell-off driven by poor box office trends during the fourth quarter. A strong start to the box office in 2008 also was helping. The recovery gained steam following the report which was inline with expectations and a first view of 2008 guidance. Here is a brief recap:
Regal Entertainment guided to the high end of analysts estimates for 2008. In 4Q, operating trends were exactly as expected given the box office performance. 4QEPS came in 4 cents ahead of consensus on better than expected margin performance and lower than expected interest expense. The tax rate was down but still stood at a normal 37%. The conference call had a positive tone.
Based on the new guidance, I think the stock can trade to $21-22, up 16%, which along with a current yield of 6.5% makes this an interesting total return situation. The key near-term risk is the tough March comp at the box office due to the popularity of the movie 300 a year ago.
The upside should get a boost from rising analyst estimates for 2008 based on the new guidance and the strong start to the box office this year. I know of two analysts who are estimating 1Q box office to be down 9-10%. It is hard to see how anything short of a small gain will be the ultimate outcome with the box office up 19% through this past weekend.
Comps get particularly tough in late June so my current plan is to sell into strength I anticipate over the next few months.