The holidays could come a little early this year for investors in entertainment stocks, predicts analyst Marla Backer of Research Associates LLC. She says Hollywood studios are releasing expected blockbusters early -- possibly because consumers lose two key leisure days in December with Christmas and New Year's day falling on Saturdays.
A successful season at the box office and in DVD stores could provide a further catalyst for entertainment industry shares, which have been on a tear, she adds. Ms. Backer expects The Incredibles, Polar Express, Ocean's Twelve and Lemony Snicket to do boffo box office. In the home entertainment window, box office earners Shrek 2, Harry Potter and the Prisoner of Azkaban, and Spider-Man 2 are all being released in November.
From a stock perspective, Ms. Backer believes the biggest winners could be Imax Corp. , with Polar Express, and Pixar Animation , with The Incredibles. "As smaller companies and pure plays, we believe their shares are likely to see greater immediate impact from a strong theatrical performance," Ms. Backer said in a note to clients.
Similarly, she expects shares of DreamWorks Animation SKG Inc. to get a boost from the DVD release of Shrek 2 and Marvel Enterprises from Spider-Man 2. While Time Warner Inc. will likely do well with Harry Potter, and Sony Corp. should benefit from Spider-Man 2, she believes the sales will have less impact on such large conglomerates.
She says Imax's shares have quietly moved up 63 per cent over the past three months or so. Investor sentiment toward Imax has finally turned, Ms. Backer believes, and she sees further upside for it as well as DreamWorks and Pixar.
As for Imax, analyst Eric Wold of Merriman Curhan Ford & Co. says investors taking up the stock are buying into a story that is only in the initial stages, calling the company "a rebirth" within the media-entertainment sector. If Imax were a movie, he says, "we believe that we are still only watching the pre-preview commercials and are expecting the main feature to start some time during fiscal year 2005."
Mr. Wold says investors have been looking for three main criteria to regain their confidence in Imax: the ability to deliver on quarterly financial expectations; the attraction of a major Hollywood studio besides Warner Brothers; and the signing of a theatre deal with a major commercial operator. He sees signs that all three requirements are being met. He points to strong results in the past two quarters, a deal with Sony to show Spider-Man 2 in the Imax giant-screen format, and the signing of 15 theatre deals in the fiscal third quarter. Mr. Wold rates the shares "buy."
Holiday homeruns
The major studios are releasing t heir blockbusters early this year, since December's box office is held back by the fact both Christmas and New Year's Day fall on Saturdays this year. Her are the season's expected hist and the stocks that would benefit. (All figures in U.S. dollars.)
The Incredibles
Studio/distributor: Pixar/Disner
Ticker: PIXR - Nasdaq
Est. production budget: $92-million
Est. marketing budget: $55-million
Est. box office: $213-million
Ocean's Twelve
Studio/distributor: Time Warner
Ticker: TWX - NYSE
Est. production budget: $85-million
Est. marketing budget: $51-million
Est. box office: $200-million
Lemony Snicket
Studio/distributor: Viacom
Ticker: VIA - NYSE
Est. production budget: $100-million
Est. marketing budget: $60-million
Est. box office: $235-million
Polar Express
Studio/distributor: Time Warner/IMAX
Ticker: TWX - NYSE; IMAX - Nasdaq
Est. production budget: $200-million
Est. marketing budget: $120-million
Est. box office: $461-million
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