Outlook: IMAX Primed for Strong Release Slate
IMAX (NYSE:IMAX) will report Q4:13 (December) results before market open on Thursday, February 20, and hold a conference call at 5:30 a.m. PT (dial-in: 800-820-0231, conference ID: 9729185, webcast: http://www.imax.com/corporate/investors).
We are increasing Q4 estimates, which reflect stronger-than-expected box office for high-profile worldwide releases. Although IMAX no longer provides mid-quarter or end-of-quarter box office updates, it appears that Gravity performed well above our initial expectations. We expect Q4 revenue of $94 million and EPS of $0.35 versus prior estimates of $90 million and $0.30, and consensus of $93 million and $0.33.
While we expect Q1:14 domestic box office to be up from an easy Q1:13 comp of down 12 percent, IMAX’s initial results have been underwhelming so far. January results were above our expectations, up 7.9 percent, February is trending up 14.7 percent month to date and Q1 is trending up 10.3 percent through February 18. Despite the strong domestic box office, IMAX’s releases this year – Jack Ryan: Shadow Recruit, I, Frankenstein, and RoboCop – are unlikely to surpass $100 million.
IMAX box office results for films that opened during the quarter performed roughly 53 percent higher than IMAX releases during Q4:12. The Hunger Games: Catching Fire ($396 million), Gravity ($255 million), Thor: The Dark World ($203 million), The Hobbit: Desolation of Smaug ($202 million), and Captain Phillips ($105 million) all surpassed $100 million at the domestic box office during Q4:13, compared to only Skyfall ($291 million) and The Hobbit: An Unexpected Journey ($229 million) last year.
A string of big-budget flops during 2013 could cause the studios to reassess crowding of the summer release slate, which could impact FY:14 results. The disappointing results of IMAX films last summer could cause studios to reconsider the number of IMAX films produced in FY:14 and beyond. However, in the alternative, a spreading of the release schedule could benefit IMAX box office results going forward.
We are maintaining our NEUTRAL rating and our 12-month price target of $28. Our price target reflects roughly 37x our FY:14 EPS estimate of $0.76. Despite a disappointing 2014 so far, the stock appears primed to benefit from a strong release slate towards year-end, as well as heavily back-end loaded installs and results.
Michael Pachter is an analyst at Wedbush Securities.