Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

Welcome Back to the Land of the Viable, IMAX

Posted on | June 29, 2009 Time: 11:11 am |

Ever since I saw the first preview for the Transformers movie sequel months ago, I was running an over/under in my mind for how low the Metacritic score would be…50? No, that would be way too high.  This movie was pure drivel. I settled in on 40, figuring that the USA Today or TV Guide would give it a 75 to boost the average.

I was pretty close, with the movie registering a 36 out of 100. Oh, did I mention that the movie made $112 million over the weekend, and $200m in the first 5 days?!!

imaxThat’s ok, I stopped being surprised at the broad tastes of America a long time ago. My point for mentioning this is that the IMAX release pulled in $14.4 million on 169 of their mega-screens (not to be confused with Megatrons). This was nearly twice as much as the previous best IMAX release, one of the Harry Potter films last year (I can’t keep ‘em straight anymore) at $7.3 million.

IMAX Corporation has emerged like the proverbial Phoenix (that’s what is was! - Harry Potter and the something Phoenix) to find itself a viable entity again. And I’ve been waiting for this moment for the better part of a decade.

I wrote a piece of commentary back in December of 2007 for Investopedia (you can read it here) in which I outlined my case for why, with a little less interference from horrible management, this company was worth at least $500-$600m on its brand alone. Back then the company was just announcing a broad effort to convert to digital projection screens, which would serve to massively lower the ongoing cost structure.

As with any company who had been managed into pseudo-bankruptcy, cheated on their SEC reports, and put itself up for sale (only to realize nobody wanted to bid), I avoided the stock like the plague.

It may finally be time to take a hard look at the stock, despite the fact that shares have run over 200% in the past 6 months:

Positive Catalysts Could Finally Dent the Financial Statements

The most important thing the company has done this year isn’t having a great showing for a blockbuster (sic) movie release. It was being able to float a secondary offering for $70 million, something that simply wouldn’t have been possible last year. $44 million of the proceeds went towards immediately retiring some of the company’s debt, some especially icky 9.67% notes due next year.

IMAX’s balance sheet has been bloated for quite some time, and with this debt retirement the company may actually be able to report a net profit in current quarter for the first time since 2005.

Even after the stock’s recent run, the market cap is just $360m. I maintain that the value of the IP (which may or may not have protection) and the brand is likely worth north of $500 million. To that end I’ll be taking a hard look at the financials and current mgt to see if this well-rested puppy is worth inclusion in the Secular Trends Portfolio.

In the meantime, while I can’t recommend seeing Transformers 2: Revenge of the Sith (wait, that’s not it…) on its merits, I can recommend checking out your local IMAX theater. It is an experience, and the brand has been maintained despite previous mgt’s best attempts to drive the company into the ground. This could be a double digit stock by the end of the summer.

EpiphanyOne

disclosure: author does not hold a position in IMAX.

More on this topic (What's this?)
IMAX Corporation (IMAX) Profits Jump (Short-Term Trading, 3/11/10)
Bret Barakett's Tremblant Capital Group Files 13G On IMAX (market folly, 8/25/09)
Avatar Drives IMAX Stock (Top Gun Financial Planning, 1/11/10)
Read more on Imax at Wikinvest
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