Is Cineplex a Buy for a 6.6% Yield?

Cineplex (TSX:CGX) stock has fallen +26% after reporting its Q3 results. The market probably freaked out from its net income and diluted earnings per share declines of 40.7% in Q3, which were partly due to increased overall costs.

Cineplex’s core business looks healthy as it is able to generate higher revenues from movie tickets and concession spending. Its yield of  6.6% seems safe but there are other risks in the company. popcorn at the theatre

About Cineplex

Box office revenue and concession revenues made up 73.5% of total revenues in the first nine months of the year. So, before reviewing Cineplex’s Q3 results, I thought the stock fell because those revenues declined. That wasn’t the case.

For Q3, theatre attendance increased by 2.6%, box office revenues per patron increased by 2.7%, and concession revenues per patron increased by 4% compared to the same quarter in 2017.

What caused Cineplex stock to fall?

What caused the stock to fall were declines of -40.7%, -9.3%, and -40.7%, respectively, in net income, adjusted EBITDA, and diluted earnings per share compared to the same period in 2017.

Management explained that “adjusted EBITDA declined CAD$5.5 million to CAD$53.4 million mainly due to an increase in the share-based compensation cost as compared to the prior year (CAD$8.4 million) due to the decline in the share price in 2017 compared to the increase in the share price in 2018.” (Source: MD&A – p4)

Read the full article, including a discussion on Cineplex’s dividend safety, risks, valuation, technical analysis, and starting buy range.

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Disclosure: At the time of writing, I don’t own any stocks mentioned.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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