IMAX Stock Breaks Out After Goldman Initiates With Buy Rating

IMAX Corporation (IMAX) shares rose more than 16% after Goldman Sachs initiated coverage on the stock with a Buy rating and $14 price target. Analyst Michael Ng believes that the company's focus on blockbuster films could position it well for a recovery in moviegoing since larger films should be less affected than smaller and mid-budget films that compete with alternative distribution platforms.

During the first quarter, IMAX reported revenue that fell 56.5% to $34.9 million, missing consensus estimates by $8.33 million, and a non-GAAP net loss of 48 cents per share, missing consensus estimates by 34 cents per share. Despite these lackluster results, Ng notes that IMAX has "ample liquidity" for what could be a rough recovery and a strong slate of films for 2021.

A COVID-19 vaccine could help 2021 become a strong year for entertainment companies, but the near-term picture remains a bit cloudier. For instance, California's new shutdowns led to a significant drop in the shares of AMC Entertainment Holdings, Inc. (AMC), Cinemark Holdings, Inc. (CNK), IMAX, and other companies.

From a technical standpoint, IMAX stock rebounded from trendline support and past the 50-day moving average at $12.11. The relative strength index (RSI) rose toward overbought levels with a reading of 61.56, but the moving average convergence divergence (MACD) experienced a bullish crossover. These indicators suggest that the stock has a bit more room to run before experiencing consolidation. 

Traders should watch for a move toward upper trendline resistance at around $15.50 or the 200-day moving average at $16.11 over the coming sessions. A breakout from those levels could lead to a move toward reaction highs of $18.00 over the intermediate term. If the stock breaks down, traders should look for a move toward trendline support at around $11.00.

The author holds no position in the stock(s) mentioned except through passively managed index funds.