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Coinstar - Revisiting Redbox

|Includes:Outerwall Inc. (OUTR)

Sept. 6th 2011, we posted that with Netflix's rising subscription fees, Coinstar owned Redbox could be poised to take some market-share and that the CSTR stock might be worth a second look. At the time the stock was at $44.61.

Following a solid earnings report, shares of Coinstar are up $9.37, or almost 19%, at $59.89. The company reported Q4 earnings handily beating consensus expectations and boosted forward looking guidance.

In September Tweaker had Consensus CSTR ranges of:

Growth rate of 19-25% (similar to previous years)
Profit margins at 7%

With those ranges in Tweaker, Coinstar looked very good, (Chart 1) not approaching overvaluation until $110.00; at the time, sentiment was quite negative.

Given that DVD's are not a rapid growth industry in the age of streaming, we poised a more sobering view (Chart 2) of slower growth and smaller margins over the next few years due to share loss to streaming and the costly investment required to offer a streaming service (if the video steaming rumors were true) - we slowed growth to 12% and profit margins down to 3%. CSTR was at a high end of $50.00.

With improving Wall Street expectations, a growth rate of between 16-22% and profit margin of 3-8% (Chart 3) puts Coinstar still at a range of $110-$125. Given current results, guidance just delivered and despite spending some major cash acquiring the DVD kiosk assets of NCR (NCR) for $125 million and building its steaming service with Verizon Communications, CSTR appears to - and continues to have - strong cash valuation support.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: OUTR