BOSTON (TheStreet) -- Regal Entertainment (RGC), the largest movie-theater operator in the U.S., has slumped 18% this year. Still, analysts at firms including Morningstar (MORN - Get Report) and JPMorgan (JPM) say Regal's shares may surge as much as 77% in the next year.

In years past, the theater industry sought to expand the number of screens per theater, an effort to boost profit that actually lowered attendance per screen and led to bankruptcies. Movie-theater operators still have no control over the films themselves, so if there is a season of duds, everyone suffers.

Still, Regal's 16% market share and financial consistency make it a best-in-class theater operator. Its stock's lackluster performance has deterred bargain hunters. But Regal has grown sales 4%, annually, in the past four years through concession- and ticket-price hikes. Morningstar projects 5% sales growth in the next five years on population growth and superior pricing, with a 13% operating margin.

Currently, Regal's stock commands a forward earnings multiple of 17, a sales multiple of 0.6 and a cash flow multiple of 6, 12%, 73% and 44% discounts to media peer averages. Its trailing earnings multiple of 18 represents a 12% discount to the industry average and a 19% discount to the stock's five-year average multiple. But, value is no guarantee of performance.

Morningstar may be overstating Regal's risks. Although studios do have leverage in negotiations and Regal bears much of the risk of unpopular releases, it has a tried-and-true real estate circuit, which makes sales forecasting easier for the studios. Also, its scale advantage offers certain cost efficiencies, including bulk concessions deals and efficient screen-per-theater ratios. Regal has industry-leading profit margins.

Morningstar offers a fair value target of $21, implying 77% of potential upside. Sell-side targets are bullish over a shorter time horizon. JPMorgan expects Regal to advance 69% to $20 within the next 12 months. Piper Jaffray and Barclays, which is known for its conservative targets and value orientation, value the stock at $19, suggesting a 60% return over the next year.

Two things that are attractive about Regal, as an investment, are its countercyclical appeal, since movie-going often increases when consumer spending declines, and its lofty dividend yield. It will pay a 21 cent quarterly dividend in 2011, equal to a 7.1% annual yield. The board just paid a huge special dividend of $1.40, equal to an 11% extra yield on the stock.

Fundamental Snapshot:

Market Capitalization: $1.6 Billion
12-Month Sales Growth: 2.6%
3-Year Annualized Sales Growth: 2.4%
12-Month Net Income Growth: 11%
3-Year Annualized Net Income Growth: -35%
12-Month Stock Performance: -13%
3-Year Annualized Stock Performance: -13%

Regal has cut its dividend from a high of 30 cents in 2008. The generous payouts help shareholders, but hurts the balance sheet. Regal held $414 million of cash and $2.2 billion of debt at third quarter's end. It is running a shareholder deficit of roughly $266 million.

Despite an excessive payout ratio, there's no need for concern as fundamentals are improving. Regal swung to a third-quarter profit of $43 million, or 28 cents a share, from a loss of $1.8 million, or 1 cent, a year earlier. Revenue ascended 3.4% to $696 million. The operating margin stretched from 6.7% to 7.8%.

Barclays views the summer box-office slate, including the final film in the Harry Potter franchise, Transformers 3 and Captain America, as a catalyst for Regal's stock. Also, upgrades to 3D and IMAX films offer significant upside to margins as capital expenditures remain low. According to Barclays, studios are funding the upgrade cycle.

-- Written by Jake Lynch in Boston.

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