Imax shares shot higher Wednesday as Goldman Sachs initiated coverage of the large-format leader with a “buy” rating, saying it’s well positioned to take share in the current environment and has ample cash to navigate a potentially turbulent recovery.
The stock was up more than 16% on a day of solid gains for exhibition that saw Cinemark rising over 15% and Marcus up 13% with an hour left of trading. They outpaced other media stocks and an upbeat market.
Separately, analyst Eric Wold of B Riley FBR was cautiously upbeat that patchwork and unpredictable theater openings nationwide as COVID-19 cases spike in some states may push studios to release new films sooner instead of waiting for a perfect date.
“We are less certain that studios will wait for the perfect date to release their films—as that perfect date may never arrive. In other words, waiting for every major market to have optimal reopening rules for movie theaters (especially around capacity limits), may end up pushing most, if not all, titles into 2021. And if studios are concerned around the health of their exhibitor partners, they may not choose to wait much longer,” Wold wrote in a note to clients.
“With China’s reopening the biggest wild card for studios (to lessen the risk of piracy), we would be surprised if studios release films gradually into markets that are open with others added as permitted. We would view this as a positive sentiment driver for the group in the coming weeks.,“ he said.
On Imax, Goldman’s Michael Ng said its focus on blockbusters gives it an edge in a recovery where larger films should be less impacted than smaller and mid-budget movies that are more susceptible to competition from alternative distribution like PVOD — a raging debate for the past four months. The 2021 Imax slate includes Avatar, Fast 9, and Jurassic Park.
Goldman forecasts a sharp box office rebound in 2021-2022 – albeit below 2019 levels — assuming the coronavirus-challenged environment improves.
The company’s relatively capital-light business model and net cash position would provide ample runway if a recovery takes longer than expected, he said.
Ng did caution that social distancing may have an outsized impact on Imax given its high capacity utilization (it’s usually more full) compared to non-IMAX screens. Execs from Imax and other theater chains have discussed marketing efforts to nudge patrons out of weekend evenings and into other less crowded showtimes.
He also noted Imax generates a third of its consolidated box office from China, where there’s currently limited visibility on a theatrical reopening.
Ng started coverage of Cinemark too, with a “neutral” rating in part on its exposure relative to other chains to Latin America. Brazil, Cinemark’s largest LatAm market, currently has the second highest number of COVID-19 cases in the world.
B Riley’s Wold reiterated “buys” on Imax, Marcus and National CineMedia. He’s “neutral” on Cinemark as well, and on AMC Entertainment, which just announced a major debt restructuring that will allow it to operate into the spring. He said the “neutral” rates are mostly driven by near-term uncertainty versus longer-term concerns about the health of the industry once it comes out of the initial COVID-19 impact.