Can IMAX Limit Its Misses?

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

IMAX (NASDAQ:IMAX) will report Q1:13 results before market open on Thursday, April 25, and hold a conference call at 5:30am PT (dial-in: 800-820-0231, conference ID: 7114021, webcast: http://www.imax.com/corporate/investors).

We expect Q1 EPS slightly above consensus. We estimate revenue of $60 million and EPS of $0.10, compared to consensus of $54 million and $0.09, respectively. Although the company no longer provides box office updates, we believe G.I. Joe: Retaliation and Oz: the Great and Powerful exceeded our earlier expectations, while Hansel & Gretel: Witch Hunters and Jack the Giant Slayer underperformed. Unfortunately, it is difficult to determine the percentage of total box office IMAX earned for each movie. IMAX does not provide top- or bottom-line guidance.

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We expect the company to raise FY:13 installation guidance, although the increase will likely lag investor expectations. After installing 107 systems in 2012, IMAX expects to install 110-125 systems in FY:13, implying footprint growth of 18-21 percent. We view the FY:13 as conservative given continued theater signings, a large backlog of 276 theaters, and the underpenetrated nature of many markets. We note that IMAX would have to install roughly 100 theaters every year for almost three years just to catch up with its backlog, excluding any new signings.

IMAX’s release slate continues to improve, and we expect fewer “misses” going forward. Sequels for 300, The Hobbit, Hunger Games, Iron Man, and Star Trek, as well as Man of Steel, will likely be well received by IMAX’s core fan-boy audience and should drive a record year in terms of box office. However, investor enthusiasm will likely be tempered by the sluggish pace of installs…

Initiating our FY:14 estimates for revenue of $360 million and EPS of $1.40. We expect continued EPS growth as the company gets operating leverage from its expanding worldwide footprint and improving release slate.

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Maintaining our NEUTRAL rating and 12-month price target of $22. Despite an increasing backlog and a consistent stream of high-profile theater signing announcements, management appears content with a slow installation pace that limits growth. We believe our target, which represents 20x our FY:13 EPS estimate of $1.10, reflects a growth rate in line with the pace of expansion.

Michael Pachter is an analyst at Wedbush Securities.

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