Universal's "Jurassic World", the fourth film in the Jurassic dynasty, chewed up the global box office. The summer movie season is poised to break records, but the shares of theater exhibitor Regal Entertainment (RGC) are down on news of an antitrust investigation by the Justice Department. I think this could be the perfect time to get into the movie business.
According to Rentrack Media Measurement, as of Sunday afternoon, "Jurassic World" took in at least $512 million. By the time final figures are added up, there's a chance the film could dethrone Marvel's "The Avengers" as the highest domestic opening of all time.
This summer got off to a slow start and many investors were disappointed with the company's first-quarter results. Back in April, Regal said revenue fell 4.9% to $691.3 million, although it earned $0.15 a share, $0.04 better than the consensus estimate. Those results weren't enough to get investors back into the stock after a terrible 2014.
But business should pick up in the second and third quarters. Movies like "Ted 2" and Disney-Pixar's (DIS) "Inside Out" have yet to be released.
Analysts think Regal could report revenues of $842 million, up 9.2% year on year in the second quarter, and the third quarter is expected to be even stronger. Third quarter revenues could jump 11% over last year. For the year, revenue is expected to come in over $3.1 billion, up 5.3%.
Regal operates the largest movie theater chain in the United States. The company operated 7,367 screens in 574 theathers in 42 states and accounts for about 19% of the total screens in the U.S.
The stock has been weak because the Justice Department has been investigating the company regarding its alleged anticompetitive conduct around exclusivity deals with movie studios. While the company denies any misconduct, investors sold the stock anyway.
I think this could actually be a great time to get into the shares. I think analyst estimates could be low. With 67% of revenue from concessions and three hit movies back to back, lots of Americans will be standing in line for popcorn. The stock generally trades between 14x and 20x forward estimates. If you believe Wall Street's $1.20 estimate, Regal should be worth at least $24-$25/share. If I'm right, this could be a great time to get into the movie business.
FireEye: The Eye of the Tiger
Shares of FireEye (FEYE) have gone parabolic. Every time there is an announcement of a cyber-security breach, investors back up the truck and buy more. The company has the eye of the tiger. While I am impressed with the company's products and services, I think the shares are ahead of themselves. For a company growing as fast as it is, I think investors have to wait a long time before it becomes profitable.
For example, this year analysts think the company can produce $630 million in revenue, up 48% year over year. But growth estimates slow down next year and the year after. By fiscal 2017, the company is projected to produce over $1 billion in revenue and is still likely to lose money. The company figures it can reach $2 billion in revenue by 2019, but that's still a long way off.
To reach that goal, FireEye would have to grow from 3,200 customers in 2014 to over 11,500 customers by 2019. Average billings per customer would have to increase from $150,000 per customer to over $400,000. And, 90% of customers would have to renew their contracts annually. Of course, all this assuming the company can stay ahead of the competition.
Look, I understand FireEye is a revenue growth-momentum story. Investors don't expect profits anytime soon. I get it. But, I don't think FireEye is growing fast enough to justify its stock price. Growth of 48% this year slowing to 37% growth next year is great, but it doesn't seem like it's enough. For all the hype and high profile hack attacks, shouldn't this company be growing in the mid-to-high 60%s?
I'm not a technician, but the stock looks pretty far away from its 50 and 200-day moving averages. The last time the stock moved so far out of range, the shares fell from $43 to $38. I think that could happen again. I think the stock could fall from its current perch to $38. If I am right, that would be a stumble of around 25%. That's enough to take the wind out of any momentum investor's sails.
FireEye reports the first week of August. Any earnings misstep could take the stock down pretty hard.