IMAX is a Buy, says Roth Capital

There are signs of hope for the cinema industry but a recovery is still a ways off, according to Roth Capital Partners analyst Eric Handler, who on Monday reported on three names in the space. Handler gave a “Buy” rating to just one, entertainment tech company IMAX Corp (IMAX Stock Quote, Charts, News, Analysts, Financials NYSE:IMAX), which he expects will post strong growth numbers this year, thanks to its focus on blockbusters and expanding market share.

Box offices grosses finished the fourth quarter last year down 14 per cent compared to the previous year, which looks even worse when compared to the pre-pandemic Q4 2019, where grosses were 39 per cent better. 

Handler said a lack of content in the theatres is in large part to blame, pointing to Black Panther: Wakanda Forever and Avatar: The Way of Water as lone bright spots in an otherwise bleak terrain. Handler noted that only three movies topped $100 million in box office grosses during the fourth quarter (the third being Black Adam), in comparison to 2021’s Q4 which had five movies grossing more than $100 million, and Q4 2017 and 2018 which had seven and 11 movies, respectively, over that amount.

But the crop of new films in 2023 looks to be more bountiful, Handler said, including over the current quarter, where numbers are already up.

“Quarter-to-date box office revenue in 1Q is up a sizeable 44 per cent (albeit off of a very easy comp and is still down about 27 per cent versus 2019). We estimate total revenue for the quarter could reach $1.6 billion, up 20 per cent year-over-year but down a steep 33 per cent compared to 1Q19,” Handler wrote.

As for IMAX, Handler said a recovery with the Chinese market should help the company to a strong start to 2023, putting it well on its way to exceeding his $208 million revenue forecast for the Q1.

“Avatar has contributed more than $100 million in the quarter while China is seeing a big, reopening recovery. A new 15-day record has been achieved for the Chinese New Year at $56 million led by The Wandering Earth 2 with $45 million (a number which has improved to $49 million one week beyond the holiday), IMAX’s fourth highest grossing title ever in China,” Handler wrote.

For IMAX’s fourth quarter 2022, the analyst is calling for $98 million in revenue (up from $88 million previously) and $30 million in adjusted EBITDA (up from $23 million previously). For the full 2023 year, he has forecasted $350 million in revenue and $115 million in EBITDA.

Handler also gave a “Neutral” rating to theatre company Cinemark (Cinemark Stock Quote, Charts, News, Analysts, Financials NYSE:CNK), saying a weak recovery in cinema is likely to keep Cinemark from returning to its prior 20 per cent+ adjusted EBITDA margin level. 

Finally, on AMC (AMC Stock Quote, Charts, News, Analysts, Financials NYSE:AMC), Handler retained a “Sell” rating, saying its sizeable debt load and now substantially larger number of shares outstanding make the stock a troubled option for investors.

Stock: IMAX Corp

Roth Capital rating: Buy

Roth Capital target price: $21.00

Projected 12-month return: 26.5 per cent

Stock: Cinemark

Roth Capital rating: Neutral

Roth Capital target price: $12.00

Projected 12-month return: 2.5 per cent

Stock: AMC

Roth Capital rating: Sell

Roth Capital target price: $0.50

Projected 12-month return: -89.8 per cent