IMAX: Big Screen Profits
03/11/2005 12:00 am EST
For those aware of the risks associated with trading, ChangeWave Tactical Trader is an excellent service that seeks high reward opportunities. Editor Bryan Perry provides readers with an in-depth "trade of the week." For his latest, IMAX, he looks for big gains from the "big screen".
"Given my current cautious stance on the general market, my latest stock pick is the very defensive entertainment media industry. IMAX Corp. (IMAX NASDAQ) specializes in large-format and three-dimensional film presentations. The company also produces and distributes films for these IMAX theaters. The majority of IMAX theaters are operated by third parties under lease agreements with the company. Revenues are derived from the sale and lease of its systems to large-format theaters.
"In addition to theaters in museums and other entertainment sites, the major movie operators are converting to IMAX screens (which are often 80 feet high and 120 feet wide). A pioneer in sound and projection for giant screens, IMAX's format lets theaters convert their 35mm films into the 70mm IMAX system without major overhauls. This wasn't possible a few years ago. The easy conversion has brought on a slew of new deals as well as renewed investor interest.
"The company is
expanding in the US as well as in China, India, Russia, Europe, and the Middle
East. The s
hares have been trading firmly higher recently, driven by the rise in
the number of theaters signing up for the IMAX format. CEO Brad Wechsler says
IMAX signed 35 new agreements in 2004 and expects 40 to 50 in 2005. Currently,
there are about 240 IMAX formats in place in 35 countries.
"Films like The Polar Express with Tom Hanks, which garnered moderate interest in conventional theaters, was a hit at IMAX theaters, taking in $40 million as of January. The company just announced today that, in conjunction with Warner Brothers, it will release the new Batman Begins film on its screens simultaneously in June. This is a milestone for IMAX in that Hollywood sees the excellent results with The Polar Express and wants to get its content on IMAX screens right away. I feel like this company is about to have a huge year.
"What makes this trade even more interesting is that the stock has a decent short position. The shorts, expecting IMAX to face cash-flow woes, have sold the equivalent of 16% of the outstanding float. In addition, the company is a perennial takeover target in the ever-consolidating entertainment industry now that it is delivering on its business model. Names like Sony, Disney, and Time Warner make obvious suitors for the now-healthy IMAX. Technically speaking, the stock is making all the right moves. It gaps up on big volume and consolidates on light volume. The stock currently trades at $11, with a recent 52-week high earlier this month of $12.45 per share. Given the momentum of the company and the accelerating rollout of new theaters, I believe the stock is going to hit $15 between now and the June 1 release of the new Batman Begins movie."
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