Outerwall (NASDAQ:OUTR)

CAPS Rating: 3 out of 5

A multi-national company offering a range of solutions for retailers' storefronts consisting of self-service coin counting; entertainment services such as skill-crane machines, bulk vending machines and kiddie rides and e-payment services.

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Player Avatar TSIF (99.96) Submitted: 10/28/2011 4:13:58 PM : Underperform Start Price: $52.95 OUTR Score: +6.32

Some investors believe that Coinstar, Inc will reap the rewards of Netflix misfortune on the short term rentals. I previously noted that those Redbox dispensers are really popping up everywhere. Overall however, the DVD kiosk rentals is a limited business. Streaming and selection via other means will catch back up.

I believe Coinstar investors have put too high of a premium on the share price since Netflix's fall from grace. In this sentiment/envirnnment share holders who are asking too much are the quickest to run when the company can't quite deliver what they want. Profit margins have been tight at sub 5%. P/B is 3.5. P/E "around" 20.

I don't think Coinstar is a bad business, and may have potential at the high $30's. It hit $40 four times in the last three months prior to the Netflix over upside correction.

Update after earnings: Coinstar "pulled a Netflix" with the announcement that it will raise rentals by $0.20. Not much in the scheme of life, maybe a $1 a week for a moderate user, but it's still 20% and the principle of the raise. It does demonstrate, however, that the content costs are rising and margins, despite the price increase will remain tight. Hard to say if they will lose/gain/net revenue on the price raise, I expect gain revenue slightly, but not ot the level they need to suport the current share price. The 11 Million shares short got away with this one this quarter and I think are safe. Growth for the quarter was weak.

Target for CAPS: Sub $44.

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