Coinstar: A Countercyclical Play?

Last Thursday, Coinstar (CSTR), the operator of Coinstar kiosks that convert your spare change into cash for a fee and are located at many popular retail locations, reported what appears to be an excellent fourth quarter (CSTR Earnings Release).

I wonder if people are more likely to convert any spare change they have into cash when times are tough, or are they more likely to roll it themselves in order to avoid Coinstar’s 8.9% fee?

Another driver of the strong quarter appears to be its interest in Red Box, the in-store $1 DVD rental kiosk. On Thursday, the company announced that it would be buying out McDonald’s (MCD) and the other owners of Red Box to attain a 100% stake.

The stock has been on fire – it’s up about 75% in the last three months.

For a variety of accounting reasons, I’m having a tough time valuing Coinstar, but the stock is interesting to me and I’m going to keep working on it.

Disclosure: Top Gun has no position in Coinstar.

Comments

[Ranjit Thomas:]

The stock is at 30x proforma EPS, has negative free cash flow over the last 12 months, and a business model at risk of obsolescence. And they are about to issue a huge amount of stock to the owners of Redbox, who will be sure to dump it on the market. This is as sure a short as one can find in this market.

Feb 18 09:44 AM

[Greg Feirman:]

Good comment. Like I said, I'm having a tough time valuing it. It's too expensive on GAAP Net Income. But it's not clear to me that's the right measure of earnings to use. It's only a 5 multiple on 2008 EBITDA. Depreciation & Amortization is a huge expense and I don't know how much of that is reflecting economic reality.

Feb 18 10:29 PM

[Gedankonomist:]

As long as there are people who have no clue, coinstar will continue to have profits.

Feb 19 04:41 PM