Coinstar Is Cheap After Sell-Off

| About: Outerwall Inc. (OUTR)
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Coinstar (NASDAQ:CSTR) is having a tough day as the stock is down more than 5% today, mostly on the news that its CEO will retire and will be replaced by its CFO. I think the selloff creates a buying opportunity on this cheap growth play.

Recent positives for CSTR:

  • An analyst at B Riley Caris came out today stating the company is a buy on weakness as CEO change should have no bearing on company's outlook or strategy.
  • After falling for months, consensus earnings estimates have risen in the last month for FY2013's earnings estimates.
  • Lost in yesterday's CEO departure announcement was that the company reiterated its fourth-quarter revenue and adjusted EBITDA outlook issued in October, and said lower expenses would help it achieve earnings at or above the high-end of its projected range.

Coinstar provides automated retail solutions. The company owns and operates self-service Redbox kiosks that enable consumers to rent or purchase movies and video games; and self-service coin-counting kiosks.

5 additional reasons CSTR is a good growth play at under $50 a share:

  1. The company should post revenue growth of 20% in FY2012 and analysts believe Coinstar will continue to grow sales by better than 10% in FY2013. The stock sports a five year projected PEG of less than 1 (.68).
  2. CSTR is selling at less than 9.5x forward earnings, a huge discount to its five year average (23.6).
  3. Analysts consistently underestimate the company's earnings power. The company has beat earnings estimates for six straight. The average beat over consensus over the past four quarters is north of 17%.
  4. The 11 analysts that cover the stock have a $64 a share median price target on the stock, around 30% above the current stock price.
  5. The stock is selling at the very bottom of its five year valuation range based on P/E, P/S and P/CF.

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.