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Can IMAX Start Climbing Again?


IMAX now even offers theater viewing on cruise ships. Image source: IMAX.

Big-screen specialist IMAX (NYSE: IMAX) has captured the entertainment world with its unique movie-viewing experience. By offering something viewers can't get from their home-theater systems or in smaller movie houses, IMAX has been able to command premium pricing and grow revenue over the long run. However, coming into Wednesday's second-quarter financial report, IMAX investors are expecting sizable declines from year-ago numbers, and that might explain some of the share-price weakness we've seen from the company lately.

Let's take an early look at IMAX to see if it might surprise shareholders with prospects for a future turnaround.

Stats on IMAX

Expected EPS Growth

(52%)

Expected Revenue Growth

(17.4%)

Forward Earnings Multiple

23.1

Expected 5-Year Annualized Growth Rate

17.9%

Data source: Yahoo! Finance.

Are IMAX earnings destined to fall?

In recent months, investors have braced themselves for a potential pullback in IMAX earnings. They've cut their second-quarter projections by more than a dime to $0.19 per share, and more modest cuts to full-year 2016 and 2017 estimates suggest ongoing difficulties for the company. The stock has also stayed in the doldrums, falling 3% since mid-April.

IMAX's first-quarter results in April were extremely strong in the wake of an impressive slate of releases in late 2015 that held their momentum into the new year. Revenue soared by nearly half, and the company tripled its earnings per share from year-ago levels. Global box office figures jumped by more than $100 million, pushing average box office per screen up more than 40% and pointing to the recent success of the movie industry. CEO Richard Gelfond pointed to several 2016 releases that could keep IMAX's momentum going this year, and efforts to continue expanding across the globe are another way IMAX is trying to take advantage of all of its growth opportunities.

Still, many have grown concerned that the tailwinds that have helped IMAX recently could be starting to ebb. The stock dropped more than 10% in June, responding to industry analysts who argued that the lack of apparent top-level blockbuster films in the near term could threaten the theater chain's past share-price gains. The replacement of soon-to-depart CFO Joseph Sparacio also led some traders to question whether IMAX still has growth opportunities that are as strong as they would like.

How IMAX can grow

Still, IMAX has capitalized on many chances to bolster its network. In June, the company announced a 25-theater deal with AMC, expanding its existing revenue-sharing arrangement and boosting AMC's IMAX theater count to 185. On the content side, a five-picture deal with Paramount Pictures includes the coming Transformers movie and extends what has been a lucrative long-term relationship with the movie production company in the past.

International growth also remains important. A five-theater deal with U.K.-based Cineworld Group adds a crucial foothold into the European market for IMAX. China has also been a key area of focus for IMAX, with the theater chain working with partners to create the IMAX China Film Fund. The fund will contribute $3 million to $7 million per film in order to help develop the movie production business in China and ensure that its theaters can show not only international blockbusters but also home-grown domestic content in the world's most populous nation.

One interesting thing to focus on in IMAX's report will be early results from its IMAXShift fitness concept. The cycling-based experience involves riders of stationary bikes in theaters seeing images projected on the IMAX big screen, with as many as 50 riders being able to participate at a time. With workouts specially choreographed to fit the film, IMAX hopes it can benefit from the healthy-living trend and differentiate itself from ordinary fitness clubs and gyms.

In the IMAX earnings report, investors should nevertheless focus mostly on how well the theater company's core movie results turn out. With most expecting a sluggish spring, any positive surprise could help IMAX stock break out of its recent doldrums and start climbing again.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.