100 Reasons to Believe in IMAX Again

The big-screen maker is about to get even bigger. Shares of IMAX (Nasdaq: IMAX  ) traded as much as 71% higher this morning after the company signed a joint-venture deal with AMC that will transform 100 ho-hum multiplex screens throughout the chain into new IMAX digital projection systems.

Half of the screens will begin rolling out come July, with the remaining screens going up in 2009 and 2010. 

The deal is huge because it grows the installed base of IMAX screens while also validating the company's nascent push to digital projection systems.

Both of those points are important. IMAX closed out the third quarter with nearly 300 screens in 40 countries. Tack on the 100 screens to a healthy backlog of pending orders from other exhibitors, and IMAX's empire will grow significantly in a hurry.

That's important, because the fastest-growing line item at IMAX has been its cut from turning conventional theatrical blockbusters into its bigger-than-life celluloid. It costs the same to remaster a flick for 50 screens as it does for 500. The difference in the past has been the cost of producing the reels, but going digital eliminates that.

AMC isn't the only multiplex operator installing IMAX screens in its hottest markets. Chains like Regal (NYSE: RGC  ) , Cinemark (NYSE: CNK  ) , Muvico, and Carmike (Nasdaq: CKEC  ) are doing so on smaller scales. However, IMAX canvassing 100 of its theaters in 33 of its most important markets with digital IMAX raises the stakes. If you're going to survive as a multiplex, you will either have to devote a screen to IMAX or find a way to build a better mousetrap.

Even before you consider the ambassadorial implications, the AMC deal is a juggernaut in and of itself.

In an Associated Press article, Roth Capital Partners analyst Richard Ingrassia relays how the deal is worth up to $4.50 per share based on management assumptions. That's not too shabby for a stock that closed yesterday at $4.64.

Even if the assumptions are overly optimistic, IMAX is back in a good groove. It has never had a problem securing content. Movie studios like Time Warner (NYSE: TWX  ) and Sony (NYSE: SNE  ) relish handing over their biggest properties for IMAX makeovers that are proving to be more and more incremental. Even DreamWorks Animation (NYSE: DWA  ) , despite its own 3-D initiatives, recently signed a deal to show many of its upcoming computer-rendered flicks on IMAX screens (as I had predicted weeks earlier).

Turning a profit consistently on the lumpy installations has been the real heartbreaker. With IMAX now ready to add considerably to that base over the next several quarters, steadier film revenue will become the company's dinner bell.

IMAX screens can stretch as much as eight stories high. As far as story stocks go, IMAX itself finally has the catalyst it needs to let investors see the big picture.

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