IMAX Earnings Preview: What to Expect

IMAX (NASDAQ:IMAX) will report Q3 2011 results before the market open on Thursday, October 27, and hold a conference call at 5:00am PT (dial-in: 866-321-6651, conference ID: 4444302, webcast: http://www.imax.com/corporate/investors).

Lowering our estimates to reflect lower-than-expected box office and system installs. Lowering Q3 estimates for revenue to $70 million from $78 million and EPS to $0.19 from $0.32. Lowering FY:11 estimates for revenue to $235 million from $246 million and EPS to $0.43 from $0.70. Lowering FY:12 estimates for revenue to $297 million from $320 million and EPS, to $1.18 from $1.40.

Expecting Q3 results in-line with our lowered estimates for revenue of $70 million and EPS of $0.19, compared with consensus for revenue of $68 million and EPS of $0.21. IMAX did not provide detailed forward guidance.

Box office miss reflects lack of depth on IMAX release slate. On October 4, the company announced estimated Q3 box office at IMAX theaters of $149.2 million, below our prior estimate of $161.2 million. Although summer blockbusters Transformers: Dark of the Moon and Harry Potter and the Deathly Hollows – Part 2 likely slightly exceeded our expectations, Cowboys & Aliens, Final Destination 5, and Contagion did not perform to the box office levels we had expected.

System installs likely suffered from global economic uncertainty. As a result, we believe some third parties (such as theater operators) took longer-than expected to prepare their sites for installation.

We continue to value IMAX based upon its expanding footprint. We still expect IMAX to double its footprint over the next three years, driving rapid earnings growth, but the slower-than-expected ramp has caused us to re-set EPS and valuation expectations. The leverage on the company’s revenue growth is impressive, and we think earnings could more than quadruple by 2014, suggesting the stock is cheap at current levels.

Maintaining our OUTPERFORM rating, but lowering our 12-month price target to $21 from $28. Our revised price target is based upon a 18x multiple applied to our $1.18 EPS estimate for 2012, reflecting a discount to the company’s earnings growth rate due to the uncertainty of the pace of theater installations.

Michael Pachter is an analyst at Wedbush Morgan.

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