IMAX Benefited By Blockbusters, Global Box Office Boom

| About: IMAX Corporation (IMAX)

Summary

IMAX fist quarter showed off effect of blockbuster movies on revenue and per screen averages.

Company has incredibly strong lineup of blockbuster movies and showed 11 of top 15 grossing movies in 2015.

IMAX continues to be a play not just on China, but international movie growth, with exposure to many emerging movie markets.

Shares of IMAX Corporation (NYSE:IMAX) hit $35 last week after reporting stellar first quarter earnings. Shares quickly erased those gains and traded back down to the $32 range. In the third quarter, IMAX once again proved that it is the best stock to own to capitalize on two growing trends in the movie theatre sector: blockbuster movies, and international theatre expansion. IMAX is dominating in both of these categories and investors should start to take note.

If you've ever read my work here on Seeking Alpha, chances are you're familiar with my bullish outlook on IMAX. I started recommending the stock back in 2009 and have been a shareholder for more than seven years. IMAX remains one of my largest positions, even after selling a partial stake years ago to diversify my portfolio after shares increased more than 300%.

I last highlighted IMAX after their third quarter earnings. I pointed out how the fourth quarter had huge blockbusters in "Star Wars: The Force Awakens", "Spectre", and "Mockingjay Part 2". Other highlights of that article also included a discussion on the IMAX China IPO and what "Star Wars" being added to China in 2016 could mean.

I think the recent 2015 box office year showed just how strong the IMAX brand is and why it is a great investment idea to get the overall exposure to the blockbuster movies. Take a look at the top 15 grossing movies in 2015 for the domestic market (IMAX if was on IMAX screens):

· 1. "Star Wars: The Force Awakens"-IMAX

· 2. "Jurassic World"-IMAX

· 3. "Avengers: Age of Ultron"-IMAX

· 4. "Inside Out"

· 5. "Furious 7"-IMAX

· 6. "American Sniper"-IMAX

· 7. "Minions"

· 8. "Mockingjay Part 2"-IMAX

· 9. "The Martian"-IMAX

· 10. "Cinderella"-IMAX

· 11. "Spectre"-IMAX

· 12. "Mission Impossible: Rogue Nation"-IMAX

· 13. "Pitch Perfect 2"

· 14. "Ant-Man"-IMAX

· 15. "Home"

That list shows just how incredible IMAX's lineup was in 2015 and how it continues to sign deals with the largest movie companies for the biggest movies. Out of the top 15 grossing movies in 2015, IMAX showed all but four of them. Of those four, three were animated movies and one was a musical comedy. IMAX helped all of these movies boost their box office in some way thanks to additional screens and the strong consumer demand to get the bigger picture. That has got to go a long way in showcasing the IMAX brand. Also consider that IMAX accounted for 10% of Star War's worldwide gross on less than 2% of worldwide screens, which is an incredible statistic showing the brand power and consumer demand.

Now look at 2016 so far and the top grossing movies:

· 1. "Deadpool"-IMAX

· 2. "Batman v. Superman"-IMAX

· 3. "Zootopia"-IMAX

· 4. "Kung Fu Panda 3"-IMAX

· 5. "The Jungle Book"-IMAX

That's right, all five of the top grossing movies so far in 2016 have also appeared on IMAX screens.

I mentioned that IMAX could have a huge first quarter with "Star Wars" possibly playing in China and "Deadpool" and "Batman v. Superman" hitting screens worldwide. That brings us to last week's first quarter earnings.

First quarter revenue increased 48% to $92.1 million. Adjusted EBITDA grew 97% to $31.5 million. Box office for IMAX movies grew 64% in the quarter to $272 million, led by "Star Wars: The Force Awakens", "Batman vs. Superman" and "Deadpool".

One area that other writers have pointed to as a weakness is IMAX's per screen average. This metric was pretty strong in the quarter, although China did dip a bit. Remember that "Deadpool" was not shown in China. Per screen average grew 40% to $284,000. That marked the highest per screen average since 2010. Domestic per screen average grew an impressive 78% to $281,000. In China, per screen average dipped slightly to $290,000. International territories, excluding China, saw a per screen average of $284,000, an increase of 48%. IMAX highlighted specific regions that showed strength and it plays into the international piece mentioned below. Japan, Sweden, and Denmark led the way with huge per screen average increases. Australia, Argentina, and France also saw double digit per screen growth. Germany, Egypt, and the United Arab Emirates saw triple digit per screen average percentage gains.

China is often the other big topic with IMAX earnings. China IMAX box office revenue grew 33% in the quarter. IMAX screens in the country also grew by 30% for the quarter. While the lineup below looks strong, IMAX will also show several high profile local language movies in China. This includes July's "The Lost Tomb". IMAX is also in active discussions to show two highly anticipated movies in "The Great Wall" and "Journey to the West" in the country. The company plans on 8 local movie releases during the year. IMAX did sell a stake in the Chinese segment of the business, which unlocked value and made for a healthier balance sheet. IMAX still owns 68.5% of IMAX China.

The second quarter also had a strong start with "The Jungle Book", which grossed $20 million in its opening weekend on IMAX screens. The rest of 2016 looks promising for IMAX and the company continues to fill its calendar. This includes showing some movies for only their opening weekend and also adding in international local language movies. Here are other movies being shown on IMAX screens in 2016:

· May 6: "Captain America: Civil War"

· May 27: "Alice Through the Looking Glass"

· Jun 10: "Warcraft"

· Jun 17: "Finding Dory"

· Jun 24: "Independence Day: Resurgence"

· Jul 1: "The Legend of Tarzan"

· Jul 15: "Ghostbusters"

· Jul 22: "Star Trek Beyond"

· Aug 5: "Suicide Squad"

· Sep 9: "Sully" (Shot with IMAX cameras)

· Sep 23: "The Magnificent Seven"

· Sep 30: "Deepwater Horizon"

· Oct 28: "Inferno"

· Nov 4: "Doctor Strange"

· Nov 18: "Fantastic Beasts and Where to Find Them"

· Dec 16: "Star Wars: Rogue One"

Here is the lineup of movies to be shown on IMAX screens (sources include Box Office Mojo, and prior deal announcements with studios):

2017:

· Jan 13 - "Geostorm"

· Feb 10: "Lego Batman"

· Feb 17 - "Maze Runner: The Death Cure"

· Mar 3 - "Untitled Wolverine"

· Mar 10 - "Kong: Skull Island"

· Mar 24 - "Knights of the Round Table: King Arthur"

· Apr 14 - "Fast 8"

· May 5 - "Guardians of the Galaxy 2"

· May 26 - "Pirates of the Caribbean: Dead Men Tell No Tales"

· Jul 7 - "Spider-Man: Homecoming"

· Jul 21 - "Dunkirk"

· Sep 15 - "Untitled Sony"

· Sep 22 - "Lego Ninjago"

· Nov 3 - "Thor: Ragnarok"

· Dec 15 - "Star Wars Episode VIII"

The Motion Picture Association released some statistics at CinemaCon recently. The overall global box office was up 5% to $38.3 billion. In the Asia and Pacific region, box office revenue grew 13%, led by China. Box office in China was up 49% to $6.8 billion and represented nearly 50% of the Asia Pacific box office total.

Take a look at these theatre counts (commercial multiplex) and number of IMAX screens in backlogs:

 

IMAX Screens

# in Backlog

United States

344

37 (US and Canada)

Canada

37

37 (US and Canada)

Greater China

295

227

Asia (excluding China)

81

44

Russia/CIS

48

23

Latin America

37

20

Rest of World

40

24

Click to enlarge

*Greater China includes China, Hong Kong, Taiwan and Macau. Latin America is South America, Central America, and Mexico.

IMAX is growing its theatre count across the world and is a great play on the international growth of movie box office. China is on track to pass the United States box office total by 2017 and IMAX is one of the best ways to play that boom. IMAX also offers investors an opportunity to get into other emerging markets. IMAX signed 36 new theatres in the first quarter. This includes new deals in India and China, two of the fastest growing movie markets. IMAX also mentioned on its earnings call that it is underpenetrated in most of Europe and the Middle East.

IMAX even highlighted just how good of a position they were in by citing the industry consolidation and how it plays into IMAX's strength with retailers. IMAX highlighted the deals of AMC acquiring Carmike, CJ CGV acquiring Mars (Turkey), and Wanda buying Hoyts in Australia. IMAX has relations with all three acquiring companies and believes it could lead to further expansion across the acquired brands.

IMAX shares also got some attention this week after the company CEO Rich Gelfond appeared on CNBC's Mad Money with Jim Cramer to discuss the company's vast international expansion opportunity.

Shares of IMAX have traded between $25.52 and $43.80 over the last 52 weeks. Shares are down 8% in 2016 after seeing a nice gain of 18% in 2015. With shares in the low $30s here, I think investors should definitely consider taking a stake before the blockbuster summer movie lineup begins. Some investors will be scared off by the high valuation and rightfully so. IMAX shares trade for 28 times expected 2016 earnings per share of $1.15, and at 23.6 times 2017 expected earnings of $1.38 per share. With the high growth levels IMAX is seeing with unit expansion and filling up its slate more, I think the high valuation is warranted and I have no problem paying the multiple. I see shares rebounding in the next couple of months and once again taking out the $40 level. Shares of IMAX should be trading for $45 by mid-2017.

Disclosure: I am/we are long IMAX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.