IMAX is the best box-office stock play, Roth says

Even after a fourth quarter that was better than feared, box office expectations are low for 2024, says Roth MKM Managing Director Eric Handler.

But there is a stock in the space that investors should be paying attention to and that’s IMAX (IMAX Stock Quote, Chart, News, Analysts, Financials NYSE:IMAX).

“IMAX remains the preferred company in our exhibition industry coverage universe given its expanding global footprint, its increasing contributions from local language content, and its asset-light business model,” he said. “Cinemark, in our view, is the best run of the traditional exhibitors, but its shares will likely struggle to move higher if 2024 is a down year. Our negative view toward AMC reflects not only the 2024 release slate issues but also what we perceive to be its very challenging capital structure.”

Handler says IMAX, which the firm has a “Buy” rating on, is doing some things very right.

“IMAX is pretty much back to normalized box office levels,” he said. “IMAX finished 2023 with a GBO of more than $1.05bn, (+25% y/y, -5% versus 2019), which was the company’s second-best year ever. The North American region led the way with a record setting $391mn (+9.5% y/y, +8% versus 2019) followed by International, ex-China at $367mn (+11% y/y, -3% versus 2019), and China at $296mn (+83% y/y, -19% versus 2019). Local language content was a meaningful driver of business internationally, especially in China. We estimate IMAX’s box office from local language titles finished at a record $240mn-$250mn, up 4x from $58mn in 2022 (and should continue its positive trajectory in 2024).

But Handler says optimism for IMAX must be tempered against the macro picture, as Hollywood is still facing clear headwinds.

“Our -7% North American box office estimate is primarily a result of pushed out movie releases attributable to a 6-month+ Hollywood work shutdown,” he said. The blockbuster lineup for 2024 has thinned out since June with seven major releases pushed back to 2025. These movies include Thunderbolts, Captain America:Brave New World, Mission: Impossible, Snow White, Spider-Man: Beyond the Spider Verse, Avatar 3, and Blade, and, in our view, represent over $1.7bn in lost revenue for 2024. Contributions from these movies far exceed the addition of Dune 2 and Kraven the Hunter. We do expect a number of movies will be added to next year’s slate, particularly in the back half of the year, which could prove additive to our forecast. At this point last year, the 2023 release slate had yet to add Killers of the Flower Moon, Napoleon, Taylor Swift: The Eras Tour, or Renaissance: A Film by Beyonce. That said, we would rather start off conservative and revise upward than make a downward revision.”