IMAX: A Giant-Screen Opportunity

 | May 07, 2013 | 12:00 PM EDT
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Last weekend, Iron Man 3 had a gigantic opening. According to reports, the movie scored $175.3 million in its first three days in North America, the second-best opening weekend ever. Last year's Avengers reported the best opening weekend of all time, at $207.4 million. After just 12 days of release, Iron Man's total stands at an estimated $680.1 million. The movie seems to be on track to gross north of $1.5 billion worldwide. Part of that success is due to IMAX (IMAX).

On Monday after the close, IMAX reported that Iron Man 3 grossed an estimated $28.6 million for the weekend in 592 IMAX theaters worldwide, setting an all-time record for the company. Iron Man 3 has now grossed $39.3 million overseas at IMAX theaters. Driven by big summertime blockbusters, IMAX is becoming a global powerhouse.

As of March 31, there were 738 IMAX  theaters. Of those, 606  were in Cineplex theaters run by a partner. At the end of the quarter, IMAX reported that it had 283 theaters under construction worldwide. Last year, the company had 261 under construction.

Even with a substantial pullback in 2011, the stock is up 285% over the last five years, easily outpacing the Standard & Poor's 500 Index. You don't have to be a billionaire genius investor to like those numbers.

With IMAX, investors are getting a one-two punch. First, moviegoers love the idea of watching movies in IMAX 3D and are willing to pay extra for the experience. IMAX theaters grossed an average of $65,800 per screen, while the operators of regular theaters took in just $41,218 per screen. Second, IMAX is undergoing tremendous international expansion. The company has 101 screens in China and is on track to double the number of theaters by next year. IMAX just signed a deal to build five theaters in Mexico. And last month, the company just inked a deal with Cinema 21, Indonesia's largest exhibitor, for an additional eight IMAX screens, which would bring the country's total to 10. A country like Brazil, which only has one IMAX screen, is ripe for development.

Of course, there are plenty of opportunities in developed markets as well. IMAX doubled the number of screens in the U.S. and Canada in the last four years. In the U.K., the company has 19  theaters and in Russia, more than 46.

Hollywood has finally warmed up to the idea of making IMAX 3D movies. In 2005, Hollywood released just five IMAX films. In 2012, that number had jumped to 30 films. And in 2013, IMAX promises to meet or exceed last year's total releases.

Because of all the complicated partnerships and ongoing construction projects, it can be difficult to get a handle on the company's financials. The consensus estimate for fiscal 2013 calls for $300 million in revenue and $0.93 per share in earnings. As more screens come on line, the Street is estimating revenue of $354 million for next year.

IMAX just reported a disappointing first quarter, but that's not unusual, since the first quarter seems to be a difficult time for the movie industry overall. As the number of movies released in the IMAX format increases, the risk of box-office flops decreases.

Peter Lynch always said he found high-performing stocks by buying what you know. It seems most Americans know movies, and given the large opportunity for international expansion, it looks like IMAX has room to run.

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