IMAX Earnings Preview: Deep Stock Analysis

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

IMAX (NYSE:IMAX) will report Q3:12 (September) results before market open on Thursday, October 25, and hold a conference call at 5:30am PT (dial-in: 866-321-6651, conference ID: 9337410, webcast: http://www.imax.com/corporate/investors).

We expect earnings in line with our recently revised estimates. We expect revenue of $78 million, vs. consensus of $76 million, and EPS of $0.20, in line with consensus. IMAX does not provide forward financial guidance. Although The Dark Knight Rises exceeded our earlier IMAX box office estimate of $102.5 million, we recently lowered our estimates due to the disappointing box office performances of many other releases. We expect Q3 total IMAX box office of  ≈ $190 million compared to mid-quarter actual performance of $123 million.

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Expect another modest increase to conservative 2012 installation guidance. After installing 20 theater systems in Q2, IMAX raised FY:12 install guidance to 110 systems from 95-100 systems. Current guidance represents a 20% decline from 137 installations in 2011. This compares to a backlog of 280 theaters, implying IMAX would have to install ≈ 100 theaters every year for almost 3 years just to catch up with its backlog. IMAX provided Q3 guidance for 26-28 systemsinstallations, including 10-12 sales-type lease systems and 16 joint revenue sharing theater systems. We expect installations at the high-end of the range.

A significant expansion opportunity remains, but execution remains uneven. At its June investor event, IMAX increased the number of zones that can accommodate an IMAX screen to 1,700, up from the 1,500 – 1,550.  However, new screens roll out at a snail’s pace, and the company appears reticent to grow its 529 commercial multiplex footprint by more than 125 screens per year.

IMAX recently added the horror film Paranormal Activity 4 to its release slate after Frankenweenie disappointed. Frankenweenie, an animated film from Tim Burton (who already released the disappointing Dark Shadows in IMAX in 2012), was seemingly scheduled for an extended run in IMAX despite many animated disappointments. Had Paranormal Activity 4 (which should appeal to IMAX’s fan boy audience) not been added, IMAX would have faced a very weak start to Q4.

Maintaining our NEUTRAL rating and 12-month price target of $21. Despite an increasing backlog and numerous theater signings, management appears content with a slow installation pace that limits long-term growth potential. Our price target represents 21x our revised FY:13 EPS estimate of $1.00.

Michael Pachter is an analyst at Wedbush Securities. 

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