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1 Reason to Bet on Cineplex Inc. Ahead of Q3 Earnings

Shares of Cineplex Inc. (TSX:CGX) ended the trading day on October 16 down 0.91%. The stock has fallen 25% in 2017 and year over year. The company has been met with skepticism as it prepares to release its third-quarter results on November 7.

The company released its second-quarter results on August 2. The North American box office experienced its worst summer in over a decade. Attendance fell from $16.8 million to $16.4 million in Q2 2016 — a 2.2% drop year over year. Same theatre attendance declined 3.1%, and year-to-date attendance is now down 3.6% compared to the first six months of 2016. Net income fell 80% year over year to $1.4 million from $7.2 million in Q2 2016.

Cineplex managed to garner some optimism with the launch of the Rec Room in 2017. The Rec Room is an arcade and eatery entertainment complex owned and operated by Cineplex. The company is hoping to expand this concept to Mississauga, Calgary, London, and about a dozen other locations in the near future. Cineplex is hoping to realize returns of 20% or more from the Rec Room locations.

Although this is an intriguing development, I want to focus on another reason to buy Cineplex ahead of its third-quarter earnings.

Record September box office results and more hits to come

A slow summer had put a dark cloud over the 2017 movie season. However, September was powered by the horror hit It as well as Kingsman: The Golden Circle, and the Tom Cruise-led action-comedy American Made. September went on to post record box office results, beating the 2015 North American total of $616 million. The month comes as a huge relief for a reeling industry.

October has been cooler with Blade Runner 2049 experiencing a disappointing opening, but there are reasons to believe November and December could be huge months for the movie industry. Beginning in November, DC will roll out Justice League, and Marvel will release the next installment of the Thor franchise. However, most intriguing is the Frozen sequel Olaf’s Frozen Adventure, coming on the heels of the original, which scooped up $1.2 billion in its box office run while becoming a global phenomenon.

December usually includes a slate of “Oscar bait,” or films that boast less mainstream appeal and are released for awards season. However, the next Star Wars installment should make the industry very excited. Star Wars: The Force Awakens raked in $2 billion at the box office.

Traditional cinemas continue to wrestle with intense competition with the rise of streaming services like Netflix, Inc., which recorded massive subscriber growth in its recent earnings. Cinemas will increasingly rely on Hollywood to provide big home runs at the box office to sustain growth in the industry. September provided Cineplex just that, and November and December boast the return of two proven multi-billion-dollar box office brands.

Cineplex stock also boasts a dividend of $0.14 per share, representing a 4.4% dividend yield. The share price is hovering around its lowest valuation in over four years, which may present an attractive buying opportunity before November 7th earnings.

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Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned. David Gardner owns shares of Netflix. Tom Gardner owns shares of Netflix. The Motley Fool owns shares of Netflix. 

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