Rodman and Renshaw initiated coverage of Ballantyne Strong (BTN), a maker of theatre and lighting systems, with a 'market outperform' rating, saying the shift of motion picture industry to digital bodes well for the company.

We view Ballantyne Strong as a derivative play on the Motion Picture Exhibition Industry - a consumer discretionary segment that is undergoing a significant, and long overdue, upgrade to digital technology. This upgrade is improving the economics for theater owners, while giving consumers a richer experience and ultimately more content options, analyst Ashok Kumar wrote in a note to clients.

This technology upgrade is finally coming to fruition after years of negotiation among various industry participants and Ballantyne Strong lies in the middle of this shift.

The company, once a storied producer of now obsolete 35 millimeter projectors, has transformed itself into a distributor of NEC digital projectors, a manufacturer of high gain cinema screens used for 3 dimensional projections, and trusted service provider of turnkey installations and monitoring services of new digital equipment.

The firm has witnessed a strong ramp in sales of digital projectors, and is looking forward to having new screen manufacturing capacity come on line in the next few months to allow it to catch up with demand - its backlog for high gain screens currently stands at 14 weeks.

Importantly, we are still in the early stages of this upgrade cycle. In the United States, about 33% percent of screens have been upgraded to digital, and there are many more upgrades and new installations to pursue around the world, Kumar said.

Shares of Nebraska-based company closed Thursday's regular trading session at $6.98 on AMEX.

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