RealD‘s shares are touching all-time lows, falling 4% to $7.71 in mid-day trading, after Stifel analyst Benjamin Mogil downgraded the 3D technology company to “hold” from “buy.” The company is at an “inflection point,” he says. It continues to build 3D screens domestically on top of the 13,100 at 2,900 locations it had at the end of June. That’s worrisome because “there are few weekends where 3D screen capacity is an issue” and “given declining 3D demand appears to us to be unnecessary.” The danger is that exhibitors will feel empowered to bargain for lower equipment rental rates when their contracts with RealD are up for renewal. Lots of its contracts with theater owners including Regal, AMC, and Cinemark will expire before the end of 2018. In addition, RealD is investing to bring 3D to home viewers. But execs have not “articulated any timelines/benchmarks for these initiatives…nor have they articulated how much money whey are willing to spend.” That’s a problem because investors “have limited visibility on where the home market technology stands from a commercial perspective.” It might make sense for RealD to go private, Mogil says. But that would be difficult. Insiders own just 15% of the shares, and privatization “would crimp investments in the home [3D initiatives], a key for management’s growth platform.”
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