September 2009 | Members

Here is the rest of the Imax story:

Let’s get back to the here and now.  I’m not too crazy about the secondary stock offerings but the company has raised a ton of cash to satisfy its debt and continues onward with their rollout plans.  One thing I noticed in my research over the weekend was the Open Interest in the December 10 calls (IMQLB, 60 cents) which now stands at 7,600 contracts.

The other interesting thing with Imax is that it now becomes a ripe takeover target after Disney’s (DIS, $25.90, up $0.46) purchase of Marvel Entertainment (MVL, $47.96, up $0.54).  For those of you who don’t know the whole Imax story, research some of the older blogs on the website to get the “Imax Experience”.  Is the huge Open Interest in the December 10’s a sign?  Yes, I’m speculating but that is why I love playing this game… 

Imax has put itself up for sale in the past and has since formed numerous strategic partnerships.  At one point in time there was a bidding process taking place in the “war room” to decide what was going to happen to the company but  a buyout offer never materialized.

The company has also had some shady accounting practices and SEC investigations but that appears to be a thing of the past.  At least I would hope so given all the busts we have seen lately.  After a few years of turmoil it now looks as though the company has turned a corner after recently reporting its first quarterly profit in years.

The company posted a profit of $2.6 million, or $0.05 a share versus a loss of $12.2 million, or $0.29, a year earlier in its most recent quarter.  Revenue came in at $41 million or a 94% increase.  For 2010, estimates are pegged at $0.45 a share. 

The big push for 3-D has been in the making for a few years and it would be nice to see someone come in with Imax and give them a hand in speeding up their expansion plans.  The company has some incredible technology and rumor has it that Batman 3 will be shot entirely in Imax format…if it were up to the director.

I can think of three companies that might make a good fit.  Sony (SNE, $26.51, up $0.23), Time Warner (TWX, $28.05, up $0.44) and DreamWorks Animation (DWA, $34.27, up $0.68) come to mind.

The most interesting would be Time Warner.  The company has nearly $7 billion in cash and has its own treasure chest of superheroes with DC comics.  However, if Time Warner OWNED Imax it would have a huge advantage in the coming of the 3-D age.  Or, Disney could pony up for Imax but that would be tough given the recent purchase of Marvel.  But they do have a relationship with Imax…

You would think whichever company bought Imax would gain substantial leverage in having a say-so on the other studio’s films appearing in Imax’s theaters.  There could be a fee or a percentage of sales if one studio gained control over another.  

Imax is in a sweet spot if they can manage their expansion plans and grow without taking on too much debt.  And it really couldn’t come at a better time with Avatar coming out by Christmas.  A merger or acquisition with a big Hollywood studio would give Imax less independence but a stronger industry presence. 

If a buyout were to happen, I could see at least $14 a share, and possibly as much as $16 or $17 if Imax continues higher from here on out. 

The market is clearly still discounting  Imax’s potential and the December 10 calls (IMQLB, 60 cents) could also move if Imax climbs back over $10 a share.

Here are a couple of thoughts from the earnings section:

There was some call buying in the Pep Boys September 10 calls (PBYIB, $0.40, up $0.25) on Friday and the company reports after the bell.  Earnings trades are tricky but there may be a chance to get in and out of these if you are looking for quick profits but the easy money has already been made.

There is strong support for Campbell Soup at $30 and there was a little nibbling on the September 32.50 calls (CPBIZ, $0.20, up $0.05) on Friday but the stock is not a big mover.  If by chance the stock is at $33 by September 18th these calls would double but there is heavy resistance at $31.75.  This indicates these calls could be SOLD to collect some premium if you own the stock and would be the better trade.

Here are the Current trades:

(Quotes are from Friday’s close)

Citigroup (C, $4.85, up $0.08) 

January 7.50 calls (CAQ, $0.23, up $0.01)

Entry Price: $0.32 (8/28/09)

Exit Target: $1.00, lower to 60 cents
Return: -23%
Stop:  None  

January (2011) 10 calls (VRNAB, $0.57, up $0.02)

Entry Price: $0.60 (8/28/08) 

Exit Target: $2.00, lower to $1.20

Return: -5%
Stop: None

Action:  Citigroup bounced back after trading to a low of $4.30 last week and was pushing $5 hard on Friday.  I’ve gotten quite a few emails on where I feel Citigroup is headed and all I can say is I think it will double in two years.  Look, nobody knows what Citigroup is really going to earn in 2011.  Sure there are estimates but there are a lot of moving parts in this equation that many analysts are overlooking. 

All I’m saying is Citigroup was a $23 stock a year ago.  In two years I can see them making half of that back.  Shareholder dilution and the government’s involvement have weighed heavy on Citigroup but a run back to $5.50-$6.00 over the near-term and $10 by the end of ’09 is possible if the market holds up and rallies again on 3Q earnings.

Note: I’ve lowered the exit targets because they were a little aggressive over the near-term but longer-term if Citigroup is in double-digits then they are right on the money.

Dendreon (DNDN, $23.80, up $0.80)

November 45 calls (UQBKO, $0.26, up $0.02)

Entry Price: $0.30 (8/31/09) 

Exit Target: $0.60 
Return: -13%
Stop: None

Action: Dendreon got a nice pop on Friday and went out right on its high.  The company will be giving four upcoming investor conferences so hopefully we can get a push towards its 52-week high of $27.40.  The first brief will come Wednesday, 9/9 and afterwards on 9/15, 9/16 and 9/23. 

Imax (IMAX, $9.30, up $0.12)

March 2010 12.50 calls (IMQCV, $0.40, up $0.02)

Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: -11%
Stop: None

Action:  Continue to hold and add the December 10 calls (IMQLB, 60 cents) if we get a move above $10.  You can look for a quick exit of $1.00-$1.20 and set a limit price of 50 cents to get in.

Sirius XM (SIRI, $0.65, up $0.03)

December 1 calls (QXOLA, $0.10, up $0.05)

Entry Price: $0.15 (8/21/09)
Exit Target: $0.30
Return: -33%
Stop: None

Action:  This is still a risky position but the stock did get some news when an analyst raised their price target from $1.00 from a previous target of 50 cents.  They also cut the company’s projected 2009 loss estimates in half while at the same time predicting a full year profit for Sirius next year.