Coinstar, Inc. (NASDAQ:CSTR)

Redbox which is CoinStar is joining with Verizon to provided Streaming Service and they will be atractive to all the Netflix users if they provide the Newly released Movies in their Streaming service because most of the movies that netflix provides are old and the only newer movies they provide in streaming are the less popular ones that no one really cares to watch.

Good company with a bright future, but after jumping $17 now over the last month, I see a pullback. I could be wrong and this could jump further, but I just see it coming down for a minute first....

Yes. Partnership with Verizon for Redbox is big.

Entering here at high end of a jump today but I still see another 20% from current price for the year.
"The jump primarily was due to a nearly 40% year-over-year jump in revenue from Redbox, which earned $445.6 million during the three months ended Dec. 31. Coinstar executives credited the results to the strong performance of new-release titles and consumer acceptance of a DVD rental price increase, from $1 to $1.20 a day, implemented Oct. 31."

http://www.fool.com/investing/general/2012/01/18/should-you-buy-sell-or-hold-this-red-video-streame.aspx

Should You Buy, Sell, or Hold This Red Video Streamer Dreamer?

Coinstar (Nasdaq: CSTR ) needs a name change.

Its namesake change machines long ago took a backseat to the real story: its Redbox DVD rental kiosks. Redbox comprised an overwhelming 84% of last quarter's $465.6 million in revenue. On top of that, the red brand has been dreaming of streaming online video and taking on Netflix (Nasdaq: NFLX ) for ages, and there are signs that those plans may finally be coming to fruition.

Are Coinstar shares currently a buy, sell, or hold?

Buy:

Redbox: Physical DVD renting will always have a place in our hearts, although its relative significance is certainly on the decline in the face of online video offerings. Assuming Netflix doesn't try any more boneheaded rebranding flops, it will continue to offer its namesake mailing service. Sometimes though, instant gratification does have value. Redbox has a pretty compelling value proposition through its convenience and low pricing. I frequently find myself perusing its kiosks if I'm looking for something same day, and the automated machines are much more efficient than DISH Network's (Nasdaq: DISH ) flailing Blockbuster locations that continue to go by the wayside.
The segment is what's driving revenue growth. Last quarter's 22% top-line growth is literally entirely attributable to Redbox. The segment's $84.4 million in sales growth represented substantially all of the $85.4 million growth that the entire company saw. Coinstar was even able to crank up prices by 20%, from $1 per day to $1.20 per day, with little to no fanfare, a stark contrast to Netflix's price-hike fiasco. I was a little skeptical at the time, but in this case no press is good press.
Dreaming of streaming: Coinstar has been talking of entering online video streaming for years, with nothing to show for it beyond speculation and disappointed investors. Recent rumors have it that Coinstar may be teaming up with Verizon (NYSE: VZ ) for a possible streaming service. The Redbox brand is easily recognizable within the realm of home entertainment, and if Coinstar is to finally launch a streaming offering, this could become its next growth catalyst.
Sell:

Margins: The Redbox segment has historically carried slimmer operating margins relative to the Coinstar division. Last quarter, the DVD kiosks garnered a 13% operating margin compared to the 26% that the change machines saw. As Coinstar's revenue composition continues to increasingly shift towards relying on Redbox for growth, margins could see some downside pressure. This hasn't been the case quite yet, as last quarter's overall operating margin of 14% was higher than the prior year's 12%, but this possible margin contraction presents a risk factor.
Dreaming of streaming: Launching a streaming service would be only the first step. The long-term viability of the service would depend entirely upon Coinstar's execution and its ability to maintain relevant content and grow its subscriber base. It would need to go head-to-head with Netflix, Hulu, Amazon (Nasdaq: AMZN ) Prime, and DISH's BlockBuster On Demand, among others. Amazon Prime also continues to aggressively grow its collection, recently adding Glee to its mix. These are some bigwigs to go against, and Coinstar's streaming foray could potentially end up being a money pit.
Hold:

Valuation: Trading at 13 times earnings, shares seem appropriately priced, especially when considering the 25% sales growth seen over the past five years. Coinstar's cheaper than the 21 multiple that Netflix is trading at, and Netflix's five-year sales growth is comparable at 26%. Coinstar's market cap sits just under $1.4 billion, which is pretty small considering how recognizable its brands are and the potential it has in streaming.
Coinstar: Despite the higher operating margin that the namesake division carries, the coin-changing business has been relatively stagnant compared to Redbox. The past three quarters have seen little to no year-over-year growth in the segment, rising 2% or less. The machines keep chugging along and pitching in to the bottom line, but they're definitely not the star of the show.
The final verdict
At this point, I think Coinstar overall is a buy, mostly on the strength of its Redbox division. The current valuation is cheap enough to warrant picking up shares based solely on the growth that the DVD kiosks are putting up (28% sales growth last quarter), and the possibility of adding a streaming offering to the mix is merely the cherry on top. Last quarter's profit also jumped a healthy 90%.

Even if margins end up declining as Redbox continues growing, I'd rather have a smaller piece of a faster growing pie than a larger piece of one that's been sitting on the sill for too long. To follow up, I'm going to give Coinstar an "outperform" CAPScall today.

The stock market is under-appreciating the power of being the lowest cost provider. There are many, many Americans who see the value in paying $1.20 to pick up a movie at their supermarket instead of paying $5+ to their cable system. The number of kiosks is still growing nationwide at a brisk clip.

If the company meets analyst expectations of $3.26 in earnings for fiscal year-end, they will have more than tripled earnings in three years. Think about that for a moment. What kind of price-to-earnings ratio does the market slap on that? Try 13.9x, an all-time low since the company became partial owner of Redbox in 2005. Other valuation metrics are just as compelling. The FCF yield (measured as operating cash flow less capex divided by enterprise value) is a robust 9.3%.

low peg

CSTR smashed Q3 Earnings projections. Then stock price fell roughly 15% due to market's thinking people won't pay $0.20 more to rent a DVD. Although it is a 20% increase in price; the increase is relatively small in terms of cash outlay to the consumer. I believe the market got this one wrong. Redbox will not lose customers over 20 cents. Stock price will be up over the next 3 months or so.

Increase in rental prices will do some short time damage to the stock.

Great business model with a cash cow to boot.

Hmm, NFLX reported a net loss of 800K subscribers after the Qwikstar/split fiasco. This bodes well for CSTR, which owns Redbox. Consumers will still want entertainment, but why not get it for cheaper? Sure, it's not as convenient as getting in the mail, but these folks are probably hitting the supermarket more nowadays, rather than eating out all the time. Below is the MagicDiligence.com stats for CSTR, but I don't think the financial strength calculation is correct as "Questionable":

Results for ticker 'CSTR' (Coinstar Inc.):
Earnings Yield:   8.6%
MFI Return on Capital:   31.6%

MagicDiligence Research for 'CSTR':

No research available.

Instant Diligence:

The Earnings Yield of 8.6% is Average.

The MFI Return on Capital of 31.6% is Average.

Near-term Financial Health appears to be Questionable. The current ratio is 0.90.

Calculations:

(for quarter ended 2011-06-30)
Market Cap   =   Stock_Price * Shares
   =   52.62 * 32.14
   =   1691.00

Excess Cash   =   Cash - MAX(0; (Current Liabilities - Current Assets + Cash))
   =   173.53 - MAX(0; (386.98 - 347.21 + 173.53))
   =   -39.76

Enterprise Value   =   Market Cap + Total Debt - Excess Cash
   =   1691.00 + 337.87 - -39.76
   =   2068.63

MFI Invested Capital   =   Total Assets - Goodwill - Intangibles - Current Liabilities + Short Term Debt - Excess Cash
   =   1171.88 - 267.75 - 8.20 - 386.98 + 18.16 - -39.76
   =   566.87

Earnings Yield   =   Operating Earnings / Enterprise Value
   =   178.93 / 2068.63
   =   0.086 (8.6%)

MFI Return on Capital   =   Operating Earnings / MFI Invested Capital
   =   178.93 / 566.87
   =   0.316 (31.6%)

Coinstar owns Redbox ok, so, Redbox just released a new game renting feature in their machines. Which will attract a lot of attention as the variety of games come on.

I like Coinstar at this time because of their Redbox kiosks that rent DVDs. Netflix is giving them business as Netflix just raised prices 60% in one jump and Netflix online streaming service does not have recent releases and is having difficulty maintaining extisting content. This makes Coinstar a better value choice for customers at 1.00 per night DVD rental.

Netflix has really screwed themselves with the sharp price hikes=more people using RedBoxes

Growing at 20% annually trading around 20x. PEG near 1 sounds good to me!

With rentals of only $1 per DVD, I think Coinstar's Redbox division is truly a star. If they can keep costs down and continue to establish more rental/return machines, then this division is going to continue to add significantly to the bottom line. Additionally, there seems to be very little competition. Blockbuster is not going to catch up in the next couple of years, the streaming model is not going to be established with mainstream consumers for several years as it is a "luxury" item that is easily dispensed with during recessionary times. I believe Redbox with flourish under these circumstances. Add recent gaming rentals to the mix and you've got an even better story.

REDBOX!

As mass defections from Redbox ensue over the next 30-60 days, Redbox will see a significant uptick in rentals. Also, with a slowing economy people will be less willing to shell out $50.00 for a movie and will be more likely to make it a redbox night.