IMAX: Merriman Downgrades On Valuation, Competition

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IMAX (IMAX) shares are trading sharply lower this morning after Merriman Curhan Ford analyst Eric Wold cut his rating on the large-format movie company to Neutral from Buy. He notes that the stock has rallied 110% since he picked the stock as his top pick for 2009 in January.

He notes that the stock now reflects the near-term growth outlook, trading at 22.6x his 2010 EPS estimate and 8.1x 2010 EBITDA.

Meanwhile, Wold has competitive concerns: He notes that Cinemark (CNK) next year plans to start ramping up its Cinemark XD theaters, which feature screens 72 feet wide, from 2 locations to as many as 100 over the next few years. “Cinemark XD will allow the company to penetrate the large-format segment with their own product,” keeping the profit upside, he notes. He notes that the large Cinemark screens can handle any digital 2D or 3D movie, while those converted to the IMAX format have less flexibility.

“Over the coming years, we believe this could impact IMAX box office results, shorten the legs of IMAX films, create more lag between fresh content and therefore negatively impact profitability and returns,” Wold writes.

IMAX today is down 48 cents, or 5.1%, to $9.02.