Coinstar: One Analyst Sees 80% Upside

| About: Outerwall Inc. (OUTR)

I have thought Coinstar (NASDAQ:CSTR) has been a good value stock since it sold off to $50 a share earlier in the year. The stock is up some 12% since then to $56 a share but CSTR still looks like it has upside. An analyst came out the other day with a price target of $100 a share on the shares, up from $80 a share previously. This would constitute ~80% upside from the current price. I am not as positive on the shares as this analyst from B Riley but CSTR is still cheap and is picking up some positive catalysts recently.

Other recent positive news/catalysts for CSTR:

  • The company's CEO recently stated Coinstar will see better results in the second half of the year as it benefits from a strong slate of summer movies.
  • Its current Hobbit promotion should help its subscription growth.
  • The company is one of the most heavily shorted stocks in the market with ~40% of the total shares sold short. It easily could benefit from the same sort of short squeezes that have pushed Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX) up much higher recently.

6 additional reasons CSTR looks good at $56 a share:

  1. Analysts expect revenues to grow at a ~7% CAGR over the next two fiscal years and the stock sports a five-year projected PEG of under 1 (.62)
  2. The company has raised operating cash flow by more than 40% over the last couple of years and the stock is selling for less than 4x current operating cash flow.
  3. CSTR is selling at the bottom of its five-year valuation range based on P/E, P/S and P/CF.
  4. Bears have been worried about the company's business model for years. Despite this, the company has raised earnings/revenues at better than a 25% CAGR over the last five years.
  5. Continuing that theme, the company has easily beat earnings estimates for six straight quarters. The average beat over consensus over the last four quarters has been ~13%.
  6. The stock sells for ~10x 2014's projected 2014 earnings. Its average forward P/E over the last five years is much higher (20.7).

Note: I am playing a rise in Coinstar by holding just out of the money bull call spreads.

Disclosure: I am long CSTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.