Can Cineplex Inc.’s Record Q4 Results Drive its Shares Even Higher?

Cineplex Inc. (TSX:CGX) announced record fourth-quarter results on February 9, and its stock has reacted by rising over 5%. Could it continue higher from here?

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Cineplex Inc. (TSX:CGX), the largest owner and operator of movie theatres in Canada, announced record fourth-quarter earnings results on the morning of February 9, and its stock has responded by rallying over 5%. Let’s take a closer look at the quarterly results and the fundamentals of the stock to determine if it could continue higher from here and if we should be long-term buyers today.

Record attendance leads to record earnings and revenues

Here’s a summary of Cineplex’s fourth-quarter earnings results compared with what analysts had projected and its results in the same period a year ago.

Metric Q4 2015 Actual Q4 2015 Expected Q4 2014 Actual
Adjusted Earnings Per Share $0.64 $0.63 $0.51
Revenue $407.37 million $395.79 million $332.21 million

Source: Financial Times

Cineplex’s adjusted earnings per share increased 25.5% and its revenue increased 22.6% compared with the fourth quarter of fiscal 2014. These record results can be attributed to its total attendance increasing 7.1% to a record 20.38 million, driven by the “record-breaking success of Star Wars: The Force Awakens,” which led to its box office revenues increasing 13.8% to a record $196.29 million and its food service revenues increasing 16.4% to a record $113.8 million.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Box office revenues per patron increased 6.3% to a record $9.63
  2. Concession revenues per patron increased 8.6% to a record $5.58
  3. Concession margin per patron increased 9% to $4.36
  4. Media revenues increased 17.9% to $55.26 million
  5. Gaming and other revenues increased 177.9% to $42.02 million
  6. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 35.9% to a record $85.16 million
  7. Adjusted EBITDA margin improved 200 basis points to 20.9%
  8. Adjusted free cash flow increased 24.3% to $52.87 million

Can the rally continue and should you be a buyer?

It was a phenomenal quarter overall for Cineplex, so I think its stock has responded correctly by rallying. I also think the stock could continue higher from here and that it represents a very attractive long-term investment opportunity today for two reasons in particular.

First, its stock trades at inexpensive forward valuations. It trades at 31.8 times fiscal 2015’s adjusted earnings per share of $1.55, which seems fair, but it trades at just 24.5 times fiscal 2016’s estimated earnings per share of $2.01 and only 21 times fiscal 2017’s estimated earnings per share of $2.35, both of which are inexpensive compared with its five-year average multiple of 30.6.

With its five-year average multiple and its estimated 22.8% long-term earnings growth rate in mind, I think the company’s stock could consistently trade at a fair multiple of about 30, which would place its shares upwards of $60 by the conclusion of fiscal 2016 and upwards of $70 by the conclusion of fiscal 2017, representing upside of more than 21% and 41%, respectively, from today’s levels.

Second, Cineplex has a great dividend. It currently pays a monthly dividend of $0.13 per share, or $1.56 per share annually, which gives its stock a high and safe yield of about 3.2%. Investors must also note that the company has raised its annual dividend payment for five consecutive years, and its 4% hike in May 2015 has it on pace for 2016 to mark the sixth consecutive year with an increase. I think its record amount of free cash flow could allow it to announce another hike in the very near future.

With all of the information provided above in mind, I think Cineplex represents the best long-term investment opportunity in the entertainment industry today. All Foolish investors should take a closer look and strongly consider beginning to scale in to positions over the next couple of trading sessions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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