3 Reasons To Own IMAX Shares For The Long Term

In what he described as a “draconian view,” MKM Partners analyst Eric Handler reiterated a Buy rating on Imax Corp (USA) IMAX and cut its price target from $40 to $30.

The $30 price target still reflects a 41-percent upside from the low-$21 range IMAX shares were trading at intra-day Thursday.

“We recognize investors have grown tired of overly optimistic sellside global box office projections and more often than not of late, downward estimate revisions,” said Handler in a note (see his track record here). The stock is at its lowest level since December 2012.

Related Benzinga Pro Headline: 3G Filing Shows Primecap Mgmt Reporting 8.29% Stake In IMAX

Conservative Revisions

The analyst cut his estimated 2017 global box office sales by 18 percent to $959 million, about flat year over year.

He also assumed no increase in average revenue per screen in 2018 and is not considering any savings from the company’s $20 million cost cutting plan.

The result of which is a 2017 revenue estimate reduced from $424 million to $373 million and adjusted EBITDA down from $136 million to $100 million. Both of which went from above consensus to below.

Estimates for 2018 were likely slashed, down to $415 million in sales and $128 million adjusted EPS down from $451 million and $162 million respectively.

“In our view, this outlook should hopefully prove conservative given what appears to be a stronger film slate for IMAX screens,” said Handler.

Long-Term Growth Is Still Possible

Despite these significant downward revisions, the company still warrants a Buy rating because of three drivers:

1. IMAX has the potential to more than double its core theater network over the next 10 years.
2. The company also has a strong first-mover advantage when it comes to new, out-of-home virtual reality centers, which is coupled with strategic exhibition partners.
3. IMAX can continue to leverage the optionality from content partnerships to its advantage.

Besides long-term development strategies, IMAX benefits from its strong balance sheet. The company currently has $190 million in cash and no noteworthy debt, which will allow for its second $200 million share buyback.

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