Why IMAX Corporation Shares Could Bounce 30%

Does this analyst make a good case? Or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jul 21, 2014 at 10:49AM
Consumer Goods

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of IMAX Corporation (NYSE:IMAX) gained 2% this morning after Stifel Nicolaus upgraded the jumbo movie-screen technologist from hold to buy.

So what: Along with the upgrade, analyst Benjamin Mogil planted a price target of $32 on the stock, representing 30% worth of upside to Friday's close. So while contrarian traders might be turned off by IMAX's sharp pullback in recent weeks, Mogil's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.

Now what: According to Stifel, IMAX's risk/reward trade-off is rather attractive at this point. "This move comes as we view IMAX at a positive operational inflection point as we expect significant JRSA margin expansion leading to increased operating leverage and EBITDA per screen growth," said Mogil. "While the strong 2015 and 2016 box office slate will aid the entire group, we view IMAX as exceptionally well positioned given that the attractive slate for their core comes at a time when their operating fundamentals are improving." When you couple that upbeat outlook with IMAX's rock-solid balance sheet and recent price weakness, it's tough to disagree with Stifel's bullishness.