Imax, having just unveiled its third quarter earnings, saw its stock price jump on Friday as investors look to the film technology company as possibly better-placed than its exhibition partners to benefit from a continued Hollywood box office recovery.
“We view Imax as the best way to play the upcoming theatrical rebound, the best positioned to gain from consumers’ ongoing shift toward premium theatrical amenities, a solid way to position for a rebound in the Chinese economy, and over the longer-term, the best positioned to gain from theatrical alternative content,” Wedbush analysts Alicia Reese and Michael Pachter said in a Nov. 11 investors note that gave an “outperform” rating to Imax along with a $20 price target.
Shares in Imax climbed by 68 cents, or five percent, to $14.44 on Friday as of 11:30 am PST. Wall Street bulls are betting on more near-term lift for Imax’s stock price with the release of Black Panther: Wakanda Forever and the Avatar: The Way of Water sequel as a potential box office bonanza for the film technology company.
“The upcoming release of Avatar 2 should be the main catalyst ahead for Imax shares as the company has been laying the groundwork ahead of this film for years,” Wells Fargo analyst Steven Cahall said in a Nov. 1 investors note, but he cut his price target for Imax stock from $26 to $21, while reiterating his overweight rating.
The narrative of a continuing box office recovery for Imax is complicated by China, where the company is heavily invested and Beijing regulators have reduced Hollywood’s access to the world’s second-largest theatrical market.
“As we look to 2023, we see a deeper blockbuster film slate. However, China (where Imax has 48 percent of its screens and produces 35 percent to 40 percent of revenue) remains enigmatic with its zero-tolerance COVID policy and an uneven pattern of theatrical industry openings/closings,” MKM Partners analyst Eric Handler said in his Nov. 1 investors note.
China’s tight censorship control and strict COVID-zero policies have forced Imax to play more local language titles and fewer Hollywood tentpoles on its around 800 screens in that country. B Riley analyst Eric Wold trimmed his own price target to $20, in part on uncertain timing for future theater installations in China, while reiterating his own stock buy rating on the prospect of a continued Hollywood box office recovery.
“Heading into an impressive 2023 film slate with a product that has been dubbed an affordable luxury during tougher times, we believe Imax is well positioned to approach prior box office records before the rest of the exhibition industry,” Wold said in a Nov. 1 investors note.
Imax’s continuing share price recovery is seen in part as Wall Street betting that China loosening controls — COVID-19, censorship and otherwise — will allow more tentpoles to screen on its giant screens. After the Chinese Communist Party Congress recently concluded, investors also appear to be hopeful Chinese regulators will loosen requirements for high-earning Hollywood imports as COVID lockdowns lift and that the range of Chinese films deemed politically acceptable widens.
“The one thing to really watch is Avatar in the fourth quarter because I think if Avatar performs according to our expectations, and also gets in (to China) as we think is more likely than not, than very quickly that will change the narrative in China and the narrative around the introduction of non-Chinese films into China,” Imax CEO Richard Gelfond told analysts on an Oct. 31 call after the release of his company’s latest results.