High Budget Blockbusters And New Markets Will Open Opportunities

Key Takeaways

• IMAX is leveraging global local language blockbusters and exclusive releases to boost box office revenue and earnings.
  
• Strategic market expansion and streaming partnerships are expected to enhance revenue and margins, driven by new geography penetration and unique offerings.
  
• IMAX faces risks from potential tariffs, local film reliance, production limitations, economic slowdowns, and dependency on upcoming film success.

Catalysts

Operates as a technology platform for entertainment and events in the United States, Greater China, rest of Asia, Western Europe, Canada, Latin America, and internationally.

• IMAX is capitalizing on the rise of big budget, high production value local language blockbusters worldwide, which is expected to significantly increase their global box office revenue.
  
• The company has signed agreements for more than 100 new and upgraded systems year-to-date, which indicates strong future growth in network and potentially higher installation-related revenue.
  
• IMAX's increasing focus on exclusive film releases, including blockbuster franchises like Avatar and major Hollywood directors, is expected to boost earnings through higher box office receipts.
  
• The expansion of IMAX into new markets such as Saudi Arabia, Vietnam, Indonesia, and Thailand is anticipated to widen their revenue base and improve net margins, as these high growth regions are less saturated.
  
• Partnerships with streaming services for exclusive IMAX releases are likely to contribute to improved revenue streams, as these partnerships emphasize IMAX's unique market position and technology edge.

IMAX Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IMAX's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 15.7% in 3 years time.
• Analysts expect earnings to reach $72.9 million (and earnings per share of $1.02) by about May 2028, up from $25.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.8x on those 2028 earnings, down from 52.2x today. This future PE is greater than the current PE for the US Entertainment industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 2.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.81%, as per the Simply Wall St company report.

IMAX Future Earnings Per Share Growth

Risks

• The potential imposition of tariffs and speculation about Hollywood film imports into China could pose a risk to IMAX's revenue if key films are restricted, despite assurances from the company that larger films won't be impacted.
  
• IMAX's expansion relies heavily on the success and acceptance of local language films, particularly in markets like China, Japan, and India, which carries risk if these markets fail to perform as expected, impacting their revenue and margins.
  
• The availability of IMAX film cameras and the scheduling of productions could limit the number of films shot in the IMAX format, potentially affecting the company's ability to capitalize on high-margin opportunities from these premium releases.
  
• Economic slowdowns, particularly in key markets such as China, could affect consumer spending on movie experiences, which would negatively impact global box office revenues and subsequent earnings.
  
• The heavy reliance on the slate of upcoming films for IMAX and international releases introduces execution and operational risks if movie releases are delayed or perform below expectations, which could impact revenue and profitability.

Valuation

• The analysts have a consensus price target of $29.6 for IMAX based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $463.0 million, earnings will come to $72.9 million, and it would be trading on a PE ratio of 29.8x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $24.4, the analyst price target of $29.6 is 17.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.