Movies have been good for companies recently. The success of Marvel’s The Avengers – which grossed a record-breaking $207.4-million (U.S.) on its opening weekend in the United States – helped send Walt Disney Co. shares up for four straight days this week, for a total gain of about 6 per cent. (Disney’s strong quarterly results, released on Tuesday evening, might be helping too.)
And now there’s theatre-owner Cineplex Inc. , which gave a shout-out to another hot film this year when it released its financial results on Thursday morning: “Film product during the current year period was stronger than the prior year period, with The Hunger Games recording the highest-ever box office revenues for a first-quarter release and the third-largest opening weekend of all-time,” the company said in a statement.
Cineplex is likely being too modest here, though. Sure, hot films get bodies into theatres, and that drives Cineplex sales. However, the remarkably steady gains of its share price over the years reflects more than a sudden infatuation with a new movie.
The shares have risen nearly 20 per cent this year alone, marking a big contrast from the near-2 per cent slump for the benchmark S&P/TSX composite index. Over the past 12 months, Cineplex shares have risen 28 per cent and they have risen three-fold over the past eight years.
That’s impressive, especially for a company that has been largely a dividend play in the eyes of many investors. From 2003 until the end of 2010, it was called Cineplex Galaxy Income Fund – and as an income trust it appealed to investors who liked the idea of earnings being distributed in the form of distributions. Cineplex reverted back to a corporation at the start of 2011.
Although the shares yield 4.4 per cent, which is still high enough to get dividend investors excited, the gains in the share price account for about half of the stock’s total return (that is, including dividends) over the past five years – meaning that this is one of those rare stocks that is both a dividend play and a capital gains play.
And, amazingly, Cineplex has delivered returns to investors at a time when one might construct a pretty strong argument against the concept of going to movies. The ubiquity of giant, high-definition flat-screen televisions has put a theatre in most homes, yet apparently getting out of the house is still high on the list of things to do these days – and waiting for films to appear on DVD is low on the list.
Meanwhile, Cineplex has made the right moves in expanding its reach and raising the barriers to competitors. It acquired Famous Players in 2005, extending its brands to Cineplex Odeon, Galaxy, Coliseum, Colossus and SilverCity.
But with the shares meandering near record highs, are they still interesting? Analysts don’t sound terribly excited. According to Bloomberg News, the average price target is $28.67, or nearly 7 per cent below the current price. Just one analyst has a “buy” recommendation on the stocks, with eight recommending it as a “hold” and two as a “sell.”
That said, analyst endorsement isn’t everything. Indeed, their relative lack of enthusiasm can suggest that there is little froth in the share price – which is something that value investors like to see. And what do analysts know about the next hot movie anyway?