IMAX stock is hard to love right now, John Zechner says

You can’t fight city hall or in this case, the hordes of viewers choosing their own couches over the local movie theatre. That spells trouble for companies like IMAX Corp (IMAX Stock Quote, Chart NYSE:IMAX), says John Zechner of J. Zechner Associates, who argues that investors should heed the warning signs of a sector-wide shift in people’s viewing habits.

Ahead of IMAX’s third quarter earnings report due later this month the company is looking to continue its solid performance, which last quarter showed a 12.5 per cent year-over-year uptick in revenues along with a consensus beat on EPS at $0.30 per share compared to the expected $0.26 per share. (All figures in US dollars.)

The stock has been trending upwards for the past few months, gaining 13 per cent since late July, as it looks to recover some of its past glory. But don’t be fooled, says Zechner, chairman and lead equity manager at J. Zechner Associates, who points to the rise in streaming services like Netflix as a harbinger of things to come.

“It’s suffering, obviously, from the migration of the business to a different mode, of people watching from home and things like that,” says Zechner to BNN Bloomberg. “It’s gone away from the premium screen providers like IMAX and we’ve even seen it in a stock like Cineplex which is down from north of $50 to just under $30. The whole group has been under some pressure valuation wise, earnings wise.”

Can’t make value argument for IMAX stock

Just as Cineplex has made its push to diversify its revenue streams beyond the box office, through its Rec Room arcade games and media services segment, for example, IMAX appears willing to move beyond its traditional offerings with a newly created program called IMAX Enhanced, which promises to bring to the living room some of the quality sound and visuals associated with the IMAX brand.

Zechner isn’t convinced. “I don’t know if I see much of a turnaround there,” he says. “It’s very specialty.”

“You can’t argue for it on a valuation basis, so it’s a harsh story to warm up to here,” he says. “I’d be inclined to take a walk on this one. I just can’t see sticking any new money into it, that’s for sure.”