Imax Corp May Get a Boost from Avatar Sequel

Shares of Imax Corp (IMAX) have fallen less than its rivals this year, as investors speculate the company will benefit from this Friday’s release of the long-awaited sequel to the 2009 hit film Avatar.  Analysts are hoping consumers will pay up to see the Avatar sequel in an Imax-supported theater rather than wait for the movie to go directly to streaming. 

Merlin Asset Management, which owns Imax stock, said, “Avatar was developed with Imax equipment for an Imax experience so that it will benefit from not only the box office but also the experience.  Also, Imax has an incredibly attractive valuation relative to its long-term growth potential, but the hype around the Avatar sequel will be really helpful.” Avatar remains the highest-grossing film in Imax history.  However, there were only 300 Imax screens when the movie was released in 2009, compared with more than 1,700 Imax screens currently. 

Imax shares have fallen -13% this year, compared with a -24% drop for Cinemark Holdings (CNK) and a -66% plunge in AMC Entertainment Holdings (AMC).  The S&P 500 Index ($SPX) (SPY) is down -15.6% this year.  When the original Avatar was released in 2009, shares of Imax Corp more than tripled from June 2009 through the end of 2010.  Last month, the CEO of Imax said the Avatar sequel had “one of the highest pre-sale levels we’ve ever seen” for tickets and noted the movie was cleared for release in China, Imax’s biggest market in terms of revenue in 2021.

The film business has been going through a turbulent time.  The pandemic closed theaters around the world, while at the same time, streaming services sprang up that offered movies, diminishing the allure of cinemas. According to Bloomberg Intelligence, year-to-date U.S. box office receipts are 33% below levels in 2019, the last pre-Covid year.

Analysts are upbeat on the prospects for Imax, with more than 80% of analysts having a buy recommendation on Imax, compared to 50% for Cinemark Holdings and none for AMC Entertainment Holdings.  Imax also trades for 19.6 times estimated earnings and 2.5 times forward sales, both of which are below its 10-year average.  Imax is also cheaper than Cinemark and AMC in terms of forward earnings, while its 18% revenue growth expected next year is better than the anticipated revenue growth of its rivals.

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