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Regal Entertainment A Defensive Buy Amid Brexit?

Wunderlich recommends Regal Entertainment Group RGC 0.36%, the largest U.S. motion picture exhibitor, as a defensive buy amid the "Brexit-induced market volatility."

Britain's voting to exit the European Union has sharply pulled down the global markets. In the United States, the benchmark S&P 500 index fell 2.39 percent, the Dow is down 2.22 percent and the Nasdaq slipped 2.85 percent.

"We believe that Buy-rated Regal Entertainment offers exceptional attributes for current Brexit-induced market volatility, given its U.S.-only operations, general dependence of box office performance on product quality rather than the economy, and 4.3 percent dividend yield," analyst Matthew Harrigan wrote in a note.

Harrigan also noted a possible new capital return activity, and expects free cash flow yield to be near 10 percent in 2017 versus the estimated 8 percent in 2016.

That said, Harrigan trimmed his second-quarter EPS and revenue estimates due to weak early summer box office results. The analyst cut his second-quarter EPS view to $0.20 from $0.34 versus consensus of $0.35. He also slashed his June quarter top-line view to $768.6 million from $830.5 million versus $833.96 million current consensus.

Furthermore, Harrigan reduced its 2016 EPS forecast to $0.98 from $1.08 versus consensus estimate of $1.07.

Meanwhile, the analyst noted that consensus remains that 2017 box office seems especially stacked, with continuation into 2018 and 2019. Visible 2017 product, led by a new "Pirates of the Caribbean," and the sequel to "Guardians of the Galaxy," likely supports a new box office record.

Harrigan maintains his $31 price target on the stock, which slightly rose 0.10 percent to $20.60.