One thing we could say about the analysts on IMAX Corporation (NYSE:IMAX) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the eleven analysts covering IMAX provided consensus estimates of US$170m revenue in 2020, which would reflect a sizeable 51% decline on its sales over the past 12 months. Losses are supposed to balloon 775% to US$1.54 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$257m and losses of US$0.24 per share in 2020. So there’s been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 6.6% to US$16.58, implicitly signalling that lower earnings per share are a leading indicator for IMAX’s valuation. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on IMAX, with the most bullish analyst valuing it at US$21.00 and the most bearish at US$12.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 51%, a significant reduction from annual growth of 1.7% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 12% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – IMAX is expected to lag the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at IMAX. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that IMAX’s revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of IMAX.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for IMAX going out to 2022, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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