IMAX Stock: Blockbuster Disney Deal Will Lift IMAX

by Jonathan Berr | March 26, 2014 6:00 am

If Imax (IMAX[1]) stock were a movie, it would be considered a flop, which is a pity because it has all the makings of a hit.

IMAX Corp. (NYSE: IMAX)[2]The Canadian company reported boffo — Hollywood-speak for awesome — fourth-quarter earnings thanks to hits such as Gravity and The Hobbit: The Desolation of Smaug, and it appears poised for significant growth for years to come. IMAX films grossed $727 million in box office in 2013, which averaged about $1.2 million on per-screen basis.

There are IMAX theaters in 57 countries, which has enabled the company to be the most globally diversified that it ever has been. An IMAX film is playing somewhere in the world 24 hours per day.

Despite that success, IMAX stock performance has been dismal. IMAX stock has slumped almost 10% since the start of the year and has only gained 2% over the past 52 weeks. The company’s track record with Wall Street has been spotty in the past, but there is plenty of reason to expect that better times lie ahead.

Superheroes Will Make IMAX Stock Fly

For one thing, IMAX recently announced an expanded partnership with Disney (DIS[3]). Disney’s next superho film, Captain America: The Winter Soldier is due to be released in April. The 2011 prequel Captain America: The First Avenger grossed a decent $176 million domestically, according to Box Office Mojo.[4] Winter Soldier may do much better, given the film’s strong advanced buzz. A critic at Slash film[5] noted that the film “may be Marvel’s best yet.”

Marvel’s Guardians of the Galaxy[6], which is due in August, is also generating plenty of excitement among moviegoers, as is  Avengers: Age of Ultron[7]. Movies based on Marvel comics, by the way, have grossed an incredible $5.8 billion, according to Box Office Mojo[8]. These are the types of action features that movie-goers will want to spend the extra money on to see in IMAX, thus powering IMAX stock.

But the real reason for investors to get excited about Imax are its 2015 releases, which include Star Wars: Episode VII. The film is being directed by J.J. Abrams — the genius behind Lost and the well-received reboot of Star Trek — and it also will bring back some of the original cast such as Carrie Fisher and Harrison Ford.

If the new Star Wars isn’t a huge hit, I will be stunned. Star Wars” fans have been clamoring for a respectable new entry in the franchise for decades. (And, no, Star Wars: Episode I did not help.) Fans will especially be excited to see the original cast of the beloved franchise.

IMAX Outlook

So to recap, IMAX has a strong market position, a pipeline of hits and a surefire mega-blockbuster in the pipeline. The one thing that’s not a hit about the company is its expensive stock price. IMAX stock trades at a forward price-to-earnings multiple of about 30, far pricier that Disney’s 19 valuation and Time Warner’s 17.

Wall Street, however, thinks IMAX has plenty of gas let in its tank. The average 52-week price target on IMAX is $31.51 — about 16% ahead ahead of where it currently trades.

During the fourth quarter, IMAX installed its equipment in 59 threatens and signed up 119 others. A year earlier, it signed contracts for 38 theater system and installed 46. IMAX reported a record backlog of 407 theaters as of the end of last year. The company has also been pushing into the high-end home theater market and expects that business to continue to post strong growth this year. Those contracts should buoy IMAX stock.

Despite this up-tick in activity, CEO Richard Gelfond has kept a tight reign on Selling General and Administrative Expenses, which rose only 3% excluding stock-based compensation costs.

“We believe that the progress we’ve made over the past couple of years will continue in 2014 and will position us well for 2015 with a vast global network of theatres and a very strong global brand,” he said in the recent earnings conference call. “And we are not stopping there; we have our sight set on growth far beyond 2015 and ‘16.”

IMAX stock price is volatile because it ebbs and flows with the movie box office. The company, though, is well-managed and well-position for the next few years. Though its frothy valuation gives me pause, IMAX stock is certainly worth buying.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

  1. IMAX:
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  3. DIS:
  4. Box Office Mojo.:
  5. Slash film:
  6. Guardians of the Galaxy:
  7. Avengers: Age of Ultron:
  8. Box Office Mojo:

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