Goldman Sachs downgraded theater chains Imax Corp. (IMAX) and Cinemark Holdings Inc. (CNK) to ‘Sell’ on Wednesday, just one day after momentum favorite AMC Entertainment Inc. (AMC) soared 22% to an all-time high. Speculators scooped up shares after the company raised $290 million in cash in a sale to a hedge fund, securing their 2021 financial position. A great weekend box office underpinned the rally as well, with some receipts returning to 2019 levels.
Speculative Interest Dries Up
Imax held up better than Cinemark during the crisis, with a few brave souls focusing limited entertainment dollars on big budget productions. The chains continued to attract strong speculative interest heading into 2021 but upticks stalled in the first quarter due to valuation concerns. Imax lifted into a stronger technical position during the rally, completing a 100% retracement into horizontal 2017, 2018, and 2019 highs in the mid-20s.
Goldman analyst Michael Ng offered mixed commentary with the ratings, noting “Although there’s been a secular decline in movie-going, attendance declines are happening at a very slow place, declining 1.4% CAGR from the 2002 attendance peak to 2019. In fact, the box office has grown at 1.3% CAGR over that same time period as increased ticket prices have more than offset attendance declines. That said, we believe the closures of theaters during the pandemic may have accelerated the secular decline in attendance.”
Wall Street and Technical Outlook
Wall Street consensus on Imax now stands at an ‘Overweight’ rating, based upon 7 ‘Buy’, 2 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $18.60 to a Street-high $30 while the stock will open Wednesday’s session just $3 above the low target. This weak placement suggests that Main Street investors generally agree with Goldman that movie stocks won’t offer strong returns for the rest of 2021.
Imax posted an all-time high at 43.80 in 2015 and turned sharply lower, dropping to an 11-year low in March 2020. It recovered at a steady pace into March 2021 when the stock reversed within two points of resistance in the mid-20s and fell six points. Price action since that time has been stuck in a trading range with support at 20 while accumulation has held just below the first quarter peak. A positive catalyst could save the day with this configuration, breaking the resistance and lifting price into the 30s.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.