“Go big or go home” could well have been the motto when the giant IMAX Corp. (IMAX.N) film format debuted in 1970. The company has also developed a 3D format, but these experiences come at a premium price for the customer. With the average family of four already shelling out around $75 for a regular movie and snacks, it looks like the appetite for a premium experience may be limited to those blockbusters like “Gravity” that offer a compelling reason to watch in 3D. What does this mean for IMAX?
Ticket receipts in the U.S., which is the source of more than 40% of IMAX’s earnings, have been weak and StarMine research indicates this trend is likely to lead to an earnings miss when the company reports quarterly results on Oct. 23. The Predicted Surprise percentage (the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate) is 11.5% for this quarter.
Source: Eikon/StarMine
Big screen, small numbers
Analysts have been lowering estimates for IMAX based on the poor box office receipts in the third quarter. The most recent I/B/E/S consensus estimate calls for earnings of 11 cents per share, which is 5 cents below what it was just 90 days ago. The StarMine SmartEstimate, which puts more weight on the most recent estimates and the best analysts, is lower at 9 cents per share. There are four 5-star rated analysts following IMAX, and all four have estimates that are below the consensus. Many cite increased competition from traditional theater operators that are also operating premium experiences.
Source: Eikon/StarMine
Weak asset turnover
Asset turnover measures how efficiently a company uses its assets to generate revenues. For IMAX, this measure is at an all-time low of 1. That shows that although IMAX is building new theaters and re-designing older ones, it is still not generating higher revenues from those investments. China may be its fastest growing market, but the enthusiasm for 3D films may be fading in the U.S.
Source: Eikon/StarMine
Watch the shorts
The shorts are circling IMAX too. The company has over 20% in short interest, and performs poorly on our Short Interest model with a score of just 6 (out of a possible 100). Based on the StarMine Intrinsic Valuation (IV) model, the 10 year growth rate required to justify the current stock price is 15%, which means the company will have to earn $3.27 per share in 10 years. While that may be possible, it remains to be seen if the initial enthusiasm for 3D in China continues to remain strong. IMAX sure hopes so, as it continues to spend aggressively on capital expenditures. Cash flows may be funding these capital expenditures for the most part, but the rapid expansion, especially in China, remains a wildcard for the company.
Source: Eikon/StarMine
Outlook out of focus
Our most comprehensive model takes into account both valuation and momentum factors – and there, IMAX scores a poor 3, which indicates weak performance on both these metrics. While hits like “Gravity” may give IMAX a boost in the short term, will the company’s prospects leave investors floating in space?
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