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Will IMAX Ride the "Star Wars" Craze Higher?

By Dan Caplinger - Feb 20, 2016 at 8:16AM

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Investors expect the big-screen theater chain to cap 2015 with a strong performance, but will it deliver?

Image source: IMAX.

The business of entertainment is growing worldwide, and big-screen theater specialist IMAX (IMAX -1.66%) has done well to take advantage of the growth opportunities in entertainment-hungry areas of the world like China. With the recent release of Disney's (DIS 2.21%) new installment in the Star Wars franchise having produced the predictable box-office splash, IMAX investors expect the theater operator's fourth-quarter results on Wednesday to be strong, but they're not as sure about the company's ability to sustain high growth rates in 2016. Let's take an early look at what IMAX is likely to tell investors on Wednesday and whether it will be able to keep growing.

Stats on IMAX

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$115.94 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance.

Can IMAX earnings keep hitting the lights out?
Investors have been somewhat lukewarm in their views in recent months on IMAX earnings. They've kept their fourth-quarter estimates unchanged, but they've reduced their full-year 2016 projections by $0.02 per share. The stock has performed poorly over the period, falling almost 20% since mid-November.

IMAX's third-quarter results in October didn't have a particularly strong impact on the stock, though the company's performance was solid. Revenue climbed 40%, helping to push adjusted net income higher by more than half from the previous year's third quarter. Installation and upgrade activity climbed sharply from the year-earlier period as the company's theater network topped the 1,000 mark, and IMAX also enjoyed greater proceeds from joint revenue-sharing arrangements. CEO Richard Gelfond predicted that Disney's Star Wars and other blockbusters scheduled for the last part of 2015 would help push future results still higher.

Indeed, Star Wars has had a huge impact on IMAX during the quarter. At the end of January, IMAX said that the Disney film had eclipsed the $200 million mark in worldwide IMAX box office, making it the second-highest-grossing title in IMAX format behind Avatar. About 60% of the $207.5 million gross came from domestic viewers, while international locations accounted for the remainder of about $87.5 million.

Yet IMAX has looked in other directions for growth. At the beginning of February, IMAX entered into a partnership with Discovery Communications (DISC.A) to give the Discovery Channel network the exclusive rights to show up to 10 IMAX documentaries on the network after being released to theater-goers. The move is the first time that IMAX has made a deal to distribute original content, and the fact that IMAX snubbed Disney to choose Discovery Communications shows its willingness to work with a variety of media companies to get the best results. Discovery was pleased with the move, acknowledging the value of making content available on multiple platforms.

The recent decline in IMAX stock nevertheless points to anticipated headwinds for the movie giant. The entire stock market has fallen in light of an expected downturn in growth rates for China and other key emerging markets, and the Chinese market has been a huge source of revenue and profit gains for IMAX lately. Many believe that fears of a Chinese slowdown are overblown, but others think that the impact on discretionary purchases like entertainment could be substantial.

In the IMAX earnings report, investors need to watch closely for guidance on how the company expects the rest of the year to go. The stock's valuation is high enough that if growth rates start to slow, they could hold back IMAX from rebounding even if the theater giant finishes 2015 on a strong note.

Dan Caplinger owns shares of Walt Disney. The Motley Fool owns shares of and recommends IMAX and Walt Disney. 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.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$124.26 (2.21%) $2.69
IMAX Corporation Stock Quote
IMAX Corporation
$16.57 (-1.66%) $0.28
Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.

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