IMAX Is Bigger Than Hollywood

A double feature of encouraging news is pushing shares of IMAX (NYSE: IMAX  ) higher today, even though domestic exhibitors are coming off a 16-year low in multiplex attendance.

An upbeat story in Wall Street Journal's Heard on the Street column this morning proposes that the provider of supersized theatrical experiences is positioned to grow nicely even if ticket sales continue to run sluggish at the local movie theater venue.

The key to IMAX's bullish thesis is that desperate exhibitors continue to embrace the proprietary enhanced format as a way to deliver a premium-priced cinematic outing that can't be duplicated in a home theater. There were 373 IMAX screens installed by the end of 2010, but the company's order backlog should translate into 580 to 600 screens by the end of this year.

Since IMAX receives a percentage of box-office receipts, more screens will naturally translate into greater revenue -- and even greater profitability given the scalable nature of the model -- as its presence grows.

There is also the booming international market. The column points out how ticket sales in North America have inched just 15% higher from 2006 to 2010, half as fast as the rest of the world. The potential is even greater for emerging economies, and it should come as no surprise that IMAX's biggest market outside of the United States is now China.

The column closes out by pointing to the compelling valuation. IMAX is fetching just 18 times this year's projected profitability of $1.05 a share. Slower growing exhibitor Regal (NYSE: RGC  ) is trading at 20 times this year's estimated earnings, and the operator's growth obviously doesn't have the same kind of upside as IMAX.

The column doesn't point out -- but I will -- that IMAX is also trading at a cheaper forward earnings multiple than 3-D outfitter RealD (NYSE: RLD  ) . However, multiplex operator Cinemark Holdings (NYSE: CNK  ) is now trading for less than 12 times this new year's bottom-line target. Then again, we need to revisit the global upside and widening margins that are possible with IMAX over a stateside theater operator.

The second piece of bull-affirming news today is a joint revenue sharing deal with a Canadian exhibitor to install four digital IMAX screens in Quebec. These deals have been popular lately, as IMAX forgoes juicy upfront installation fees in exchange for a bigger piece of the passive ticketing revenue.

Nice. Just as a column is discussing the number of screens that IMAX plans to have in place by the end of this year -- boom -- here come four more in the greater Montreal area.

I've been a believer in IMAX for years. It's been a market beater both times that I have recommended IMAX as an investment to Rule Breakers newsletter subscribers. As part of the CAPScall initiative for accountability, I've also had a bullish IMAX call on Motley Fool CAPS for some time.

All the world's a stage for IMAX, and investors can bite into a dynamic growth company in an otherwise moribund industry at a value investing price.

If you want to see how premium cinema holds up beyond today's matinee, consider adding RealD and IMAX to My Watchlist. If you're ready for a different kind of feature presentation, ask yourself if you know the two words that are scaring the dance moves out of Steve Ballmer. It's a free report, but like a hot theatrical release, it won't be showing forever -- so check it out now.

Motley Fool newsletter services have recommended buying shares of IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On January 09, 2012, at 2:42 PM, bbflyer wrote:

    Where do you get your #s for IMAX versus RealD? You state that IMAX is trading at a cheaper forward multiple then RLD??? Mean analysts expectations for IMAX versus RLD on Bloomberg: 1.09 (CY12) versus .50 (FY13 - ends 3/13)? That equals 19x for IMAX versus 17x for RLD.

    What is a better indicator is EBITDA since RLD suffers from massive depreciation costs, which hits the EPS, due to rapid screen expansion (17,000+ screens globally). Mean EBITDA expectations for IMAX for CY12 = 119MM for RLD FY13 (March) = 92MM. Now consider that IMAX has a market cap of 3x to RLD and it no longer looks cheap compared to RLD. Let's keep it accurate please!

  • Report this Comment On January 09, 2012, at 3:42 PM, TMFBreakerRick wrote:

    bbflyer, analyst estimates for fiscal 2013 for RLD have gone from $0.51 a share three months ago down to $0.35 a share now -- at least per Yahoo! (i.e. - Thomson).

    http://finance.yahoo.com/q/ae?s=RLD+Analyst+Estimates

    Zacks has it at $0.39 a share:

    http://www.zacks.com/stock/quote/RLD

    FYI, I do like RealD, though not as much as IMAX here.

  • Report this Comment On January 09, 2012, at 4:49 PM, bbflyer wrote:

    Rick,

    Thanks for the reply. My #s are from Bloomberg. I like IMAX as well but think RLD is a better buy here as the market cap is 1/3 of IMAX and has much more potential as they can go into any digital screen worldwide (there is roughly 150,000 screens globally although I don't know how many are now digital). Interestingly analysts have consistently underestimated RLD's earnings and EBIDTA (often by a long shot) since IPO. The market has punished the stock for top line revenue miss. The revenue miss is almost entirely driven by a decrease in product sales (glasses) which has a very low margin. The primary reason for this is consumers are re-using them overseas because they have to pay for them as a separate concession item. That is why the company has dramatically increased its profitability while missing revenue #s. This is partially hidden by massive depreciation from rapid screen expansion (17,000+ globally).

    They have a very powerful licensing model and 3D is red hot overseas especially in Asia (where RLD is gaining market share).

    Currently RLD has a TRAILING 12 month EBIDTA ($105MM) multiple of 4.5x which is dirt cheap considering its growth potential. Mean consensus CY12/FY13 EBIDTA for IMAX vs. RLD is 119MM vs. 94.5MM which I believe in this case is a much better measure of the company's value. I bet RLD crushes that # and exceed's IMAX's. FYI... IMAX's 12month trailing EBIDTA is $45MM (according to the company's website). That's less than 1/2 of RLD's yet it is trading at 3x the value. It is time for investor to re-look at 3D....

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