Can Imax Shares Hit New Highs With Skyfall And The Hobbit Leading The Way?

Oct. 3.12 | About: IMAX Corporation (IMAX)

Back in January, I selected shares of IMAX (NYSE:IMAX) as one of my top ten stock picks for 2012. With the year almost over, this exciting entertainment stock still has two key events coming up in the last quarter. After a blockbuster summer that saw key releases of "The Dark Knight Rises", "The Avengers", "The Hunger Games", and "The Amazing Spider-Man", IMAX closes out with blockbusters "Skyfall" and "The Hobbit".

For the first time, a James Bond movie will be released on the oversized screens that are IMAX movie theaters. "Skyfall" comes to IMAX theaters on November 8th. After seeing the last "Mission Impossible" movie release early on IMAX screens, the company is rewarded with "Skyfall" a day early. For James Bond fans, it means an extra day in theaters before "Breaking Dawn: Part 2" invades the majority of the screens at movie theaters two weeks later.

The "Skyfall" launch is important for MGM as well. MGM Studios is planning an IPO that may take place before the movie hits theaters. The company has been heavily marketing "Skyfall" with commercial and product tie-ins with companies like Heineken and AT&T (NYSE:T). The Summer Olympics in London even featured a cameo by Daniel Craig, as James Bond, escorting Queen Elizabeth to the Opening Ceremonies.

Earlier this year, I predicted "Skyfall" would open with $70 million, including IMAX screens. Movie prediction site Hollywood Stock Exchange has users guessing the movie will open with $59 million. I think that number is conservative, after "Quantum of Solace" opened with $67.5 million. The last James Bond movie would go on to gross $168.4 million in the United States over its theatrical run. An additional day in IMAX brings an additional chance for midnight showings on Wednesday night. I think the movie could gross over $2.5 million on Thursday alone.

"The Hobbit", the prequel to "The Lord of the Rings" series, gets a release on IMAX screens on December 14th. The movie opens in IMAX theaters the same time as regular theaters, but will bring in a larger amount of box office revenue than "Skyfall". Analysts and movie experts are expecting big things from the first movie in a planned trilogy. The Hollywood Stock Exchange sees an opening box office of $113 million for the likely blockbuster movie. IMAX screens should account for over 10% of this total. IMAX generally makes 12.5% of the box office from the studio, with joint ventures with movie theaters bringing in around 20% of the box office figure. These differences in percentages make it harder for analysts to predict earnings for IMAX. A good thing to watch for in the news is IMAX continuing to sign joint ventures or convert existing deals to joint ventures. In a joint venture, IMAX finances the equipment, but receives a larger percentage of box office revenue, and additional revenue from concessions.

The lineup for the rest of 2012 includes:

  • "Resident Evil: Retribution" (In theaters now)
  • "Frankenweenie" (October 5th)
  • "Cloud Atlas" (October 26th, select theaters)
  • "The Hobbit" (December 14th)

At the Goldman Sachs Investor Conference (September 19th), IMAX provided bullish numbers to get me excited about IMAX's future:

  • Theater backlog of 280
  • Total potential theaters set at 1700, with the majority of the growth and backlog representing international opportunities
  • Developing the next generation of movie theater technology using lasers. With acquired patents from Kodak, IMAX is making better pictures and will be able to make sure theaters can show more IMAX prints a year. A laser prototype will be introduced in the fourth quarter of 2013, with a rollout planned for 2014.
  • Increasing local language films in regions like China and India. IMAX announced that "DHOOM: 3 will be released in India, as its first local language film in the country.
  • IMAX theaters are present in 54 countries around the World.

Another bullish trend for IMAX continues to be early releases in its large screen theaters. As mentioned above, "Skyfall" will hit IMAX theaters a day early. While an extra day of revenue does not exactly raise box office figures, it continues the trend of movie studios recognizing the additional revenue that can be earned by an early release on IMAX. Last year, I wrote about Mission Impossible 4 hitting IMAX a week early, and how this trend could continue and be a huge positive for IMAX going forward. "Oblivion", a movie starring Tom Cruise and Morgan Freeman, will be released on IMAX one week early in April of 2013. The movie is directed by "Tron: Legacy" director Joseph Kosinski. IMAX has said that they would like two to three early releases a year.

IMAX has also experimented with going back and converting old films to IMAX format to re-show on the big screen. This year, IMAX was very successful with launching "Titanic" this way. IMAX also showed one of the "Indiana Jones" movies on IMAX for a week, bringing in $2.5 million in revenue. The company has said that they will experiment with this as a way to fill its schedule. The company could go back and convert old movies like the rest of the "Indiana Jones" movies or possibly "Star Wars" and other huge blockbuster series.

Last week, Susquehanna raised its rating on shares of IMAX to positive, from a previous neutral rating. Going into the holiday movie season, the stock could see a couple of upgrades. Shares now trade at $20.51, stuck in the middle of a fifty two week range of $12.57-$26.68. Analysts are expecting the company to post earnings per share of $0.76, up from last year's $0.40 reported. The following year, analysts see the company posting earnings per share of $1.04. These earnings numbers make shares look pricey, but I have to believe with an increasing backlog and more regional international movies being released, the company can boost earnings next year and raise guidance. I continue to hold my shares and look for additional dips to buy additional shares.

Disclosure: I am 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.