Exiting Competition, Low Prices Make Coinstar (CSTR) One Blockbuster Stock - Barron's
Coinstar's (Nasdaq: CSTR) Redbox is still killing the DVD-rental market, Barron's said over the weekend... and that makes it a potentially juicy investment.
With Netflix (Nasdaq: NFLX) notably looking to move away from it's DVD-rental business, and Blockbuster busted, the door is opening wider and wider for Coinstar to solidify its already dominant presence in the market. Coinstar/Redbox is currently the market leader with a 35 percent market share, up 10 percent from the same period last year.
Growth is also in the numbers. Coinstar is expected to report earnings of $3.26 per share for fiscal 2011, and that number will likely climb nearly 20 percent to $3.90 per share in the following year. At about $45.52, investors are valuing the company at $1.4 billion, net debt of just $150 million, and current assets of about $433 million make it an attractive target for a takeover.
One bull on the stock sees shares gaining 44 percent over the next year to $65, according to Barron's. Currently, the stock goes for about 14x expected earnings in 2011, and 11.5x for next year's outlook. Applying the 14x multiple to next year's EPS expectations yields a share price of just $54.60, about 16 percent below the analyst's expectations, but a solid 21 percent above Coinstar's current trading range.
Barron's notes Coinstar/Redbox had 500 million rentals through the first three quarters of 2011. At just $1.20 per night, that compares favorably when Amazon.com (Nasdaq: AMZN) sells it for $16.99, and Comcast (Nasdaq: CMCSA) and Time Warner Cable (NYSE: TWC) make a similar release available for rent on-demand at about $4.99 for several nights.
But you need either: 1) cable, or 2) a device capable of streaming media to your TV in order to capture the $4.99 price point. Many Americans still stick with the traditional DVD format, putting aside upgrading to a Blu-ray, Xbox, or capable TV in favor of paying bills.
Additionally, Coinstar is still banking off its coin-counting machines. Revenue is projected at $275 million, with net profit of $100 million for 2012. This compares with total top-line expectations of $2.17 billion for the period.
Other future contributions to revenue may include a new joint venture with Starbucks (Nasdaq: SBUX) for a Seattle's Best coffee vending machine, as well as EcoATM, which gives customers cash for turning in used cell phones.
Coinstar/Redbox recently raised DVD rental fees by 20 percent from $1.00 to $1.20 per night in October, while keeping Blu-ray rentals at $1.50 and video games at $2.00. The higher fee will help to offset increased charges coming in from Visa (NYSE: V) and MasterCard (NYSE: MA). Redbox has said 70 percent of it's DVD rental business is for one night rentals.
Though Coinstar/Redbox has several studio deals allowing for the rental of some DVDs the same day they're available in stores, companies like Warner Brother, Universal and 20th Century Fox (Nasdaq: NWSA) have a 28-day hold on retaining new releases. Should studios decide to extend that delay to 60 days, which Barron's said some are considering, the event might have an impact on Coinstar/Redbox's top- and bottom-line numbers.
Shares of Coinstar are up more than 0.6 percent in pre-market action Monday.
Get immediate access to market moving news and alerts with StreetInsider.com Premium - FREE TRIAL!
With Netflix (Nasdaq: NFLX) notably looking to move away from it's DVD-rental business, and Blockbuster busted, the door is opening wider and wider for Coinstar to solidify its already dominant presence in the market. Coinstar/Redbox is currently the market leader with a 35 percent market share, up 10 percent from the same period last year.
Growth is also in the numbers. Coinstar is expected to report earnings of $3.26 per share for fiscal 2011, and that number will likely climb nearly 20 percent to $3.90 per share in the following year. At about $45.52, investors are valuing the company at $1.4 billion, net debt of just $150 million, and current assets of about $433 million make it an attractive target for a takeover.
One bull on the stock sees shares gaining 44 percent over the next year to $65, according to Barron's. Currently, the stock goes for about 14x expected earnings in 2011, and 11.5x for next year's outlook. Applying the 14x multiple to next year's EPS expectations yields a share price of just $54.60, about 16 percent below the analyst's expectations, but a solid 21 percent above Coinstar's current trading range.
Barron's notes Coinstar/Redbox had 500 million rentals through the first three quarters of 2011. At just $1.20 per night, that compares favorably when Amazon.com (Nasdaq: AMZN) sells it for $16.99, and Comcast (Nasdaq: CMCSA) and Time Warner Cable (NYSE: TWC) make a similar release available for rent on-demand at about $4.99 for several nights.
But you need either: 1) cable, or 2) a device capable of streaming media to your TV in order to capture the $4.99 price point. Many Americans still stick with the traditional DVD format, putting aside upgrading to a Blu-ray, Xbox, or capable TV in favor of paying bills.
Additionally, Coinstar is still banking off its coin-counting machines. Revenue is projected at $275 million, with net profit of $100 million for 2012. This compares with total top-line expectations of $2.17 billion for the period.
Other future contributions to revenue may include a new joint venture with Starbucks (Nasdaq: SBUX) for a Seattle's Best coffee vending machine, as well as EcoATM, which gives customers cash for turning in used cell phones.
Coinstar/Redbox recently raised DVD rental fees by 20 percent from $1.00 to $1.20 per night in October, while keeping Blu-ray rentals at $1.50 and video games at $2.00. The higher fee will help to offset increased charges coming in from Visa (NYSE: V) and MasterCard (NYSE: MA). Redbox has said 70 percent of it's DVD rental business is for one night rentals.
Though Coinstar/Redbox has several studio deals allowing for the rental of some DVDs the same day they're available in stores, companies like Warner Brother, Universal and 20th Century Fox (Nasdaq: NWSA) have a 28-day hold on retaining new releases. Should studios decide to extend that delay to 60 days, which Barron's said some are considering, the event might have an impact on Coinstar/Redbox's top- and bottom-line numbers.
Shares of Coinstar are up more than 0.6 percent in pre-market action Monday.
Get immediate access to market moving news and alerts with StreetInsider.com Premium - FREE TRIAL!
You May Also Be Interested In
- UPDATE: NetApp, Inc. (NTAP) Tops Q4 EPS by 3c; Guides Q1 Lower
- UPDATE: Youku.com (YOKU) Misses Q1 EPS by 1c; Sees Q2 Sales Up 90-100% YoY
- UPDATE: Lowe's (LOW) Beats Q1 Views Amid Lagging Seasonal Demand; Issues Light FY12 Earnings Outlook
Create E-mail Alert Related Categories
Insiders' BlogRelated Entities
Barron's, EarningsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
