Movie Theater Stocks, Led By Imax, Post Gains After China Box Office Eruption

Exhibition stocks, paced by Imax, are moving higher as investors react to explosive weekend box office in China and a belief that Stateside theaters may soon see a similar release of pent-up demand.

Imax shares rose 6% to $19.81 in the early hours of trading. AMC gained almost 3% to $5.78. Cinemark and leading in-theater ad firm National CineMedia each climbed more than 3%. Marcus Corp. was up a fraction, while Reading International perked up 2%. On the London Stock Exchange, Regal parent CineWorld was up more than 1% in the final minutes of trading.

While the Chinese New Year period is always a high point for box office in the region, the powerful opening of Detective Chinatown 3 sent shockwaves around the world. The film’s $397 million debut surpassed that of Avengers: Endgame to become the biggest in any single market of all time. Imax also had a record-setting Chinese New Year opening weekend of $25 million, up 45% from 2019. (Theaters in China were shuttered last year at this time.)

The scene is different in North America, of course, with less than 40% of theaters able to operate due to ongoing coronavirus restrictions. The LA and New York markets have been closed for nearly a solid year. Nevertheless, many analysts covering Imax weighed in with positive reactions based on the weekend wave, pointing to the company’s rising fortunes as a bellwether for exhibition in the West.

Chad Beynon of Macquarie reaffirmed his “outperform” rating on Imax stock. “In our view, this result showed ‘when open and safe,’ Imax continues to be the preferable way to view movies.” With an abundance of studio movies heading for streaming, he noted, the larger sweep of the Imax experience will be prized by moviegoers and enable the firm to avoid some of the stigma of regular exhibitors. Imax is also invested in cameras — Detective Chinatown 3 is the latest big-budget feature to use the company’s equipment in its production.

Eric Wold of B. Riley Securities has a “buy” rating on Imax shares, with a 12-month price target of $28. He said the company’s 6% share of all box office dollars in China last weekend is a sign of things to come. More broadly, he wrote in a note to clients, it proves the value of theaters in the media ecosystem after months of debate and shifts in strategy.

The box office explosion in China, Wold wrote, “only demonstrates the power of the theatrical window for blockbuster films—and a reason to hold onto a film vs. pivoting too early to make the film available on streaming platforms. We also believe this highlights the box office opportunity for an exceptional portfolio of films that have been delayed from 2020 and early 2021 into the second half of 2021 and 2022.”

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