Analyst: IMAX Revenue Lower Than Expected

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Lower-than-expected revenues from sales-type lease installations and JV revenue sharing arrangements drove revenue and EPS below our expectations. Revenue was $48 million, compared with our estimate of $55 million, and consensus of $50 million. Adjusted EPS was $0.05 (excluding a $0.04/share charge for stock-based compensation), compared with our estimate of $0.09, and consensus of $0.06. EPS was below our expectations due to lower-than-expected installations and negative operating leverage.

Several agreements with Chinese firms help to solidify IMAX’s (NYSE:IMAX) strength as a premium large-format-screen brand in the country.In early April, IMAX announced the sale of a 20 percent stake in IMAX China to strategic Chinese investors with a number of key goals for the transaction, including continued expansion of IMAX’s theater network in China, the sustained performance of IMAX’s Hollywood and local titles, and strengthening government and industry relationships in the country. Additionally, IMAX announced a content delivery agreement with Wasu Digital TV Media Group as part of the IMAX TCL home theater initiative.

The exhibitors’ in-house Premium Large Format screen brands appear to us to be a legitimate competitive threat to IMAX. We believe that IMAX opened the door for competitive PLF as a result of geographic restrictions limiting new screen opportunities. We believe certain DMAs underpenetrated by IMAX have become ripe for alternative PLF formats privately branded by the exhibitors, as those exhibitors may not have the rights to IMAX screens in the particular DMA where they have interest in a large-format screen.

We are decreasing our FY:14 estimates for revenue slightly to $321 million from $324 million, but are maintaining our EPS estimate at $1.04 to reflect the quarter’s results.The company once again did not provide forward revenue or earnings guidance.

We are maintaining our NEUTRAL rating and our 12-month price target of $28. Our price target reflects roughly 27x our FY:14 EPS estimate of $1.04. It is not clear that the IMAX China transaction unlocks significant value that wasn’t already reflected in IMAX’s share price, especially given the per-screen valuation. The stock appears primed to benefit from a strong release slate toward YE, as well as heavily back-end loaded installs and results.

Michael Pachter is an analyst at Wedbush Securities. 

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