'Avatar' boosting Imax shares

Analysts worry stock will suffer if film's success is unique

TORONTO -- Experts are divided over whether record boxoffice from "Avatar 3D" is pushing up shares in Imax too far and too fast.

The company's stock has hit all-time highs this month, so Wall Street is discussing its outlook, with most analysts still seeing more upside thanks to a changed business model and more 3D crowd-pullers on more screens this year.

"It's not simply 'Avatar'; Imax is very well positioned to benefit from a number of blockbusters to be released in the next 12 months," said Piper Jaffray analyst James Marsh, who has an "overweight" rating and $16 price target on the stock.

He emphasized that "Avatar" still has another six weeks in Imax theaters to make more money for the company.

Imax last week crossed the $100 million global boxoffice mark for James Cameron's 3D epic. But Imax shares declined 3.6% on Friday, having hit an all-time high of $14.60 on Jan. 6.

Gabelli & Co. analyst Brett Harris, who has a "buy" on Imax shares and thinks it will be worth $18 next year, pointed out that "Avatar" has continued to hold up better in Imax than in regular theaters since its launch and that Imax's share of boxoffice is well ahead of its share of screens showing the film.

"This once again proves Imax is the premium movie experience," he said.

Harris believes the stock is trading higher not only on the success of a single movie but the company's business plan and ability to pick good movies.

Looking beyond "Avatar," Marsh also sees Imax launching more screens worldwide this year, which should mean more premium 3D movie ticket prices and profits.

"Imax is well positioned to grow its cash flow in excess of 30% over the next three years," he said.

"Avatar" also spotlights the firm's joint venture theater business model to spread film risks and costs, which has made more investors comfortable with the firm's outlook. Plus, "Avatar" could be whetting 3D movie appetites in international markets, especially China and India, where the venture model could entice smaller chains to acquire Imax screens.

"As the number of screens increases for Imax with better margins and more sustainable growth, people will realize this is not a one-shot movie kind of story," Janco analyst Martin Pyykkonen said. "This is a change-the-business story from the way they've done things in the past." He has a "buy" rating and $18 price target on Imax shares.

But some skeptics see "Avatar 3D" as a one-off -- an outlier that dominates boxoffice but leaves the broader exhibition industry unchanged, at least for now.

"While 'Avatar' is likely a watershed for digital and 3-D technology, it does not tell us that the underlying economics of the film business have changed," Barclays Capital analysts Anthony DiClemente and George Hawkey wrote in a recent report.

There's also concern that the Imax brand might suffer if moviegoers who were dazzled by "Avatar 3D" and its immersive effects are disappointed viewing future 3D titles on its giant screens.

Merriman Curhan Ford analyst Eric Wold has a "neutral" rating on Imax, partly "given the planned accelerated rollout for Cinemark XD," a large-format digital initiative that competes with Imax.

But he is bullish on the likely Imax hauls for Summit Entertainment's "The Twilight Saga: Eclipse" and other upcoming titles. The 3D pipeline at Imax this year also includes DreamWorks Animation's "How to Train Your Dragon" and "Shrek Forever After" and Disney's "Tron Legacy 3" and "Toy Story 3."

A big test for Imax will be how audiences greet Tim Burton's "Alice in Wonderland," which launches March 5; the Disney title will be Imax's first post-"Avatar" 3D offering.

Imax CEO Rich Gelfond insists his business model is not dependent on "Avatar" -- or, for that matter, any other single $500 million boxoffice performer that might land on his screens.

"I don't think every film has to be as good as 'Avatar' for Imax to perform well," he said. "That's a bar that doesn't have to be met, nor will it be met."

Gelfond sees the recent run-up in Imax stock as less a short-term rally than the result of a long and hard slog to anchor the Toronto-based exhibitor in commercial entertainment, reduce overall debt and restore profitability.

"The Imax story is just beginning to unfold," he said. "Imax has just come through a transition, and the brightest part of our future is still to come."

Georg Szalai in New York contributed to this report.
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