Why Did Canaccord Just Upgrade IMAX Months After Downgrading It?

Shares of IMAX Corporation (USA) IMAX rose almost 5 percent on Monday after Canaccord Genuity analysts Aravinda Galappatthige and Sharath Toopran upgraded the stock to Buy from Hold just two months after downgrading shares.

The specialists also boosted their price target from $35 to $38.

According to the report, the bullishness is related to easing earnings risk, along with valuation versus comps becoming more attractive. Given the high expectations for the film industry this year, there was always a risk of under-performance, analysts explained. However, they now believe first quarter results might beat expectations.

Second quarter results might also surprise on the back of Furious 7 and The Avengers: Age of Ultron. Canaccord adds Mission: Impossible Rogue Nation, Terminator Genisys and Star Wars: Episode VII could be strong to close out 2015.

China IPO

Galappatthige and Toopran also take note of the company's potential IPO in China and capital allocation.

IMAX now carries a balance sheet with over $100 million in net cash, which is projected to rise to $292 million by the end of fiscal 2016. They expect "more material decisions around capital allocation in the near term," and believe the company is leaning more toward share buybacks and M&A activity.

In regard to an IPO in China, they explain it may occur sooner rather than later: "We now believe that with the right conditions and valuation, it could potentially occur next year."