IMAX is a Buy, says Roth Capital

The big picture view remains positive on IMAX Corp (IMAX Corp Stock Quote, Charts, News, Analysts, Financials NYSE:IMAX), according to Roth Capital Partners analyst Eric Handler, who provided clients with an update on Wednesday, saying the stock is the best play in the global cinema sector.

In a second quarter preview, Handler said he has lowered his top and bottom projections to $86 million in revenue and $29 million in adjusted EBITDA. The reductions were driven by a softer gross global box office (GBO) of $269 million, Handler said, which while representing a nine per cent year-over-year increase nonetheless was still down 26 per cent compared to the record-setting second quarter 2019. (All figures in US dollars.)

“While the lower box office results in 2Q are disappointing, we would note IMAX’s 1Q23 GBO exceeded our projections, which were first raised on February 23 from $208 million to $255 million before finishing the quarter at $273 million,” Handler wrote.

The analyst said all of IMAX’s GBO growth over the second quarter came from its China business, which saw a year-over-year increase of 155 per cent to $67 million from a COVID-impacted $26 million a year ago. Top titles included Guardians of the Galaxy: Vol. 3 ($45 million), The Super Mario Bros. ($45 million), Fast X ($33 million), and Spider-Man: Across the Spider-Verse ($28 million).

“Despite a lower than projected 2Q box office, we continue to view IMAX as the preferred way to play the global box office recovery,” Handler wrote. “Specifically, blockbuster movies are generally performing well across IMAX’s network, the company’s market share remains elevated, the Chinese box office is seeing a particularly strong recovery, and there has been a resurgence of demand for IMAX systems from theatres.”

Handler said he is estimating 16 system installations for the second quarter, including five straight sales, four digital upgrades, two hybrid sales and five joint venture installs. With those additions, IMAX’s commercial screen total would be 1,643 globally, representing a year-over-year increase of two per cent and a 14 per cent growth over the second quarter 2019. Handler said deal activity appeared to be robust in the second quarter, with seven announced deals covering 39 future installations.

IMAX announced in May an expansion of its partnership with Kinepolis with eight IMAX with Laser systems, including four new locations in Europe, new locations in Michigan and Ontario and two upgraded systems in Ontario.

“In a year in which IMAX continues to drive very strong sales activity, this agreement marks our biggest multi-territory deal to date — underscoring the surging demand for the IMAX Experience across regions and even into new markets,” said Rich Gelfond, CEO of IMAX, in a statement.

With his update, Handler reiterated a “Buy” rating on IMAX and $26.00 target price, which at press time represented a projected one-year return of 51 per cent.