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Thursday, Aug 11, 2022

Superhero Summer Punches Up 3-D Firm’s Stock

As the summer blockbuster season heats up with this week’s release of “The Amazing Spider-Man,” shares of RealD Inc. are once again popping.

The stock of the Beverly Hills 3-D projection company climbed 7 percent last week to close at $15, making it one of the biggest gainers on the LABJ Stock Index for the week ended June 27. (See page 30.)

The gains capped a 29 percent run-up over the past four weeks, helped by the strong 3-D showing of “The Avengers,” distributed by Burbank-based Walt Disney Co., which has topped $600 million at the worldwide box office, spurring optimism among value investors.

“What we’ve seen is more evidence that 3-D is here to stay,” said James Marsh, an analyst at Piper Jaffray & Co. in New York. Marsh rates the stock a “buy” with a $22 target. RealD installs and licenses its projection technology to theaters, taking 50 cents from each 3-D ticket, which cost consumers an extra $3 on average. In places where box-office data is unreliable, such as the fast-growing Chinese market, the company takes a flat fee from theaters.

But the long-term prospects of the business were called into question as recently as last year, when the stock fell from a May high of $35 to around $8 in December. The pessimism was fed by the mediocre 3-D turnout for some movies, spurring talk that the format might be a fad.

But the company has managed to beat Wall Street estimates and turn a profit in the past two quarters, most recently earning $5.5 million on $50 million in revenue for the fiscal fourth quarter ended March 23. RealD also committed to a $50 million share buyback in April.

With more high-profile movies due for release later this year –including Martin Scorsese’s “The Great Gatsby” to be shown in the format around Christmas – Marsh said there’s a strong case to be made for the company, which has installed its technology in about 20,000 screens worldwide.

He expects the company to do between 5,000 and 6,000 screen installations this fiscal year, about half of last year’s total. That should help RealD, which bears installation costs of about $10,000 a screen, build cash reserves and keep expenses down. It also is attracting a different kind of investor, which may explain some of the recent volatility.

“Part of it is related to the shareholder turnover,” Marsh said. “Early on RealD was a growth story, and there was a bit of an awkward gap before the value investors came in. Especially for smaller cap names, it takes some time.”


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