MKM, Wedbush Stay Bullish On Imax After Q4 Print

Imax Corp IMAX reported a top-and-bottom line beat in its fourth-quarter report Tuesday, leaving at least two Street analysts bullish on the stock moving forward.

The Analysts

Wedbush's Michael Pachter maintains an Outperform rating on Imax with an unchanged $28 price target.

MKM Partners' Eric Handler maintains at Buy, unchanged $27 price target.

Wedbush: Decent Quarter, Encouraging Update

Imax delivered a "decent" fourth-quarter report, but various metrics behind the headline numbers weren't as encouraging, Pachter said in a Wednesday note.

For instance, global box office on Imax screens was down 15 percent at the end of the quarter, while domestic box office on Imax screens was down 30 percent. The quarter was up against a tough "Star Wars" comp, the analyst said. 

Looking forward Imax is likely to grow both revenue and EBITDA in 2019 and likely beyond from the following, Pachter said:

• Expansion in international markets.
• The growth of its film slate, especially titles catering to local markets in Asia.
• Continued streamlining of the cost structure, including exiting a virtual reality venture that will no longer be a drag to earnings.
• Expanding the laser projector footprint domestically and international.

Imax didn't offer any revenue and earnings guidance, but did highlight expectations for global box office on Imax screens to be up by a mid-to-high single-digit, the analyst said.  

MKM: Capital Returns In Focus

Imax ended 2018 showing significant improvement in free cash flow from the unwinding of its new business ventures; improving theater efficiency; and lowering operating expenses, Handler said in a Wednesday note.

Free cash flow rose from $19 million in 2017 to $62 million in 2018 and is modeled by MKM to rise another 10 percent in 2019 to $68 million, the analyst said.

Imax's increased cash flow helped the company buy back $72 million worth of its stock and another $6 million in Imax China shares, Handler said. Share repurchases are likely to increase in 2019, he said. 

Imax's return on invested capital also improved from 2.6 percent in 2017 to 6.4 percent in 2018, the analyst said.

Management's guidance of mid-single digit to high-single digit global box office growth implies its ROIC can move higher to around 10 percent in 2019 and to 15 percent over the long term, according to MKM. 

Price Action

Imax shares were up 9.21 percent at $22.76 at the time of publication Wednesday. 

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