Ahead of its second quarter results, Canaccord Genuity analyst Aravinda Galappatthige thinks the selloff in shares of IMAX (NYSE:IMAX) is overdone.
On Wednesday, July 26, IMAX will report its Q2, 2017 results. Having already confirmed that the Q2 box office number was $268.8-million, Galappatthige points out that most of the damage has already been done, in the form of a pronounced share price swoon that began in April. He believes the soft numbers had some revisiting their long-term assumptions about the stock.
“Given the elevated expectations that investors had for Q2 with initial box office estimates in the $330-340M range, the disappointment as the box office numbers trickled in led to the stock falling a staggering 40% since April 1, 2017,” the analyst notes. “As we have discussed in our June 8 note, in which we attempted to offer up a more wholesome picture of IMAX’s recent challenges and stock reaction, the steep downturn was due to the fact that the market (ourselves included) was anticipating a strong turnaround in box office trends starting Q2/17 following an extended period of declines. When Q2 came in soft against that backdrop, we suspect that it forced investors/analysts to re-evaluate their longer-term assumptions around PSA, which consequently led to target price reductions.”
In a research update to clients today, Galappatthige maintained his “Buy” rating and one-year price target of (U.S.) $33.00 o IMAX, implying a return of 63 per cent at the time of publication.
Galappatthige thinks IMAX will post Adjusted EBITDA of $119.9-million on sales of $376.4-million in fiscal 2017. He expects those numbers will improve to EBITDA of $151.7-million on a topline of $416.6-million the following year.