Imax Corporation (IMAX - Free Report) is an entertainment technology company that focuses on film and digital imaging technologies like giant-screen images, 3D presentations, post-production, and digital projection.
The company designs and manufactures projection and sound systems for giant-screen theaters, and produces and distributes films for these theaters as well.
Imax has also designed a virtual reality headset and motion-tracking technology that allows users to explore virtual space more, partnering with content and gaming producers like Star Wars and John Wick.
However, the Zacks Rank #5 (Strong Sell) stock has struggled to show consistent growth over the past few years.
Third Quarter Results
Last quarter actually wasn’t too bad for Imax.
Adjusted earnings of 8 cents per share beat the Zacks Consensus of 2 cents per share. Total revenues were $99 million, which also beat our consensus estimate.
Global box office during the quarter was Imax’s highest-grossing Q3 ever, growing 17% to $219 million.
Additionally, its domestic box office increased 18% year-over-year compared to the overall industry box office decline of 14%.
Imax also installed 51 theaters, 49 of which were for new locations and two were upgrades.
Despite this strong quarter, analysts have become very bearish on the company, and its earnings growth trajectory is on the erratic side.
For the current quarter, Zacks expects IMAX’s earnings to grow about 63%, but five analysts have cut their estimates in the last 30 days. The consensus has fallen four cents, from $0.40 to $0.36 per share.
Earnings are expected to fall nearly 14% for fiscal 2017, and five analysts have revised their estimates downward in the last 30 days as well.
Even though fiscal 2018 could be a turnaround moment for Imax, as the company is anticipating over 56% earnings growth, the current consensus has dipped from $1.07 to $0.98 in the last 30 days. Here again, five analysts have slashed their estimates during this time period.
Can Shares Rebound?
Shares of Imax plunged over 35% in the past one-year period.
IMAX currently trades at a forward P/E of 21.37.
Imax is an interesting company, and it generates revenues by selling and leasing its proprietary systems, then servicing those systems. It also remasters films to fit the specific Imax format, creates some non-Hollywood films, and utilizes revenue-share plans with exhibitors for other certain films.
Its revenue growth over the past few years, however, is inconsistent at best. For instance, equipment and product sales hardly grew between 2010 to 2014 ($72.5 million to $78.7 million), but jumped to $119 million in 2015 only to then weakly grow to $122.4 million in 2016.
And, it’s important to note that there’s only a certain amount of real estate where Imax can install its systems; these installations aren’t huge revenue generators either, and cost about half of what is charged.
This inconsistency and unreliability in Imax’s ability to bring in solid revenues and profits are likely the reason for analysts’ current bearish view, but, the company is in the early stages of implementing new initiatives that could increase revenue generation and reduce costs.
Last quarter was evidence of these efforts, and it’ll be interesting to see if Imax can continue on this growth path.
For investors looking for a consumer discretionary stock with more near-term potential, they should consider Lions Gate Entertainment Corp. (LGF.A - Free Report) , a Zacks Rank #1 (Strong Buy) stock that anticipates earnings growth of more than 1,000% for its current fiscal year.
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