IMAX Can Make Earnings Disappointment History

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

IMAX (NYSE:IMAX) Q1 results came in below expectations. Revenue was $50 million, compared with our estimate of $60 million, and consensus of $54 million. The top-line miss was driven by weaker-than-expected results for equipment and product sales (fewer salestype lease installs), services (film distribution and post-production), and rentals (joint ventures). Adjusted EPS was $0.08, compared with our estimate of $0.10, and consensus of $0.09. The EPS miss was driven by the top-line miss, partially offset by cost control (particularly for SG&A). The company once again did not provide forward revenue or earnings guidance.

Decreasing our FY:13 estimates: We are decreasing our FY:13 estimates for revenue to $317 million from $324 million, and for EPS to $1.03 from $1.10 primarily to reflect Q1 results and SG&A spending that will be more heavily weighted towards the remainder of the year. We are maintaining our FY:14 estimates for revenue of $360 million and EPS of $1.40.

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IMAX should benefit from a strong release slate for the remainder of the year and more installations than we had previously expected. We believe IMAX shares will benefit from any positive press around the performance of the summer’s biggest releases. In addition, as Q1 installations were well below expectations and FY installation guidance was unchanged, IMAX has the opportunity to significantly exceed the Street’s bottom-line expectations if cost control continues.

Installations were well below expectations. Unless management provides more granularity about installs throughout the year (guidance for the upcoming quarter), it sets itself up for a surprise result from the Street’s point of view, as actual installs will likely be below or above the estimated pace, rather than in-line.

Although we are optimistic about its 2013 releases, y-o-y DMR revenue growth in Q1 significantly underperformed commercial multiplex growth, suggesting that IMAX has yet to fully optimize its release slate.

Maintaining our NEUTRAL rating, but raising our price target to $28 from $22 to reflect a strong 2013 release slate and rolling the target forward based on our FY:14 estimate. Our revised price target reflects 20x our unchanged FY:14 estimate of $1.40. Although Q1 results were below expectations, the stock appears primed to benefit from a strong release slate throughout the remainder of the year, as well as heavily back-end loaded installations and results.

Michael Pachter is an analyst at Wedbush Securities. 

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