September 5, 2011 - Coinstar, Inc., (CSTR-NASDAQ) through its subsidiaries, provides automated retail solutions primarily in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. The company's core automated retail businesses include the "Redbox" self-service DVD rental; and Coinstar self-service coin-counting brands.

The story here is about earnings, good, growing earnings, ones that were 56 cents in 2006 and last year finished at $2.03. And the story gets better. This year, 15 analysts have a consensus estimate of $3.09, then see $3.76 in 2012. For the third quarter, they see 88 cents vs 66 cents last year in the third. For the final period, look for 77 cents compared to 68 cents last year in the fourth. This is a company that is almost printing money.

But its stock recently fell from grace, going from an all-time high of $67.60 late last year, to $37.40. It's now headed higher. But why the pull back?

A couple of reasons: First, revenues were a little softer in the second quarter than expected. Second, the head of the Redbox division (the kiosk DVD dispenser) left the company. The revenue issue was one of lower sales than management projected earlier in the year as well as analysts' estimates. But they still grew at a 27% rate over last year's second quarter, mostly coming from Redbox revenues which are 80% of total sales. Profit margins also improved.

The departure of the Redbox leader is hard to quantify. He obviously did a good job as sales and profits continually grew under his watch. But Coinstar has a fairly deep management team, many who helped build the division. Redbox should continue to do well as one of its competitors, Blockbuster, went out of business (though was bought by Dish Network). Furthermore, Netflix recently raised prices and that should encourage viewers to try Redbox next time they're at the grocery store. Recently the company added video games as part of their offerings, and they should increase revenues as families can rent much of their entertainment from one source.

The biggest challenge for CSTR is going digital. There's no question streaming movies are the future. Coinstar isn't there yet. It's working on it, but it's imperative to develop and offer this sooner rather than later as Netflix is well established in this field (though it recently lost Starz as a supplier of movies).

Essential numbers: Market Cap is $1.41 billion. Forward P/E is 12.24. Price to book is 3.1. Book value is $14.76 a share. Operating margin for the last 12 months was 11.56% and Profit margin was 4.08%. Return on equity was a notable 19.43% and Return on assets was 9.54%. Revenues were $1.63 billion in the last 12 months. Total cash is $173.53 million. Total cash per share is $5.65. Current ratio is .90. Beta is .66. There are 30.74 million shares Outstanding with a Float of 26.74 million. Insiders own 14.77% of the stock. Institutions have 100% of the Float. There is no dividend.

Coinstar showed it's recession proof by growing earnings significantly over the last several years. The key to future dramatic growth is digital online streaming. When it offers that, expect analysts to raise all their numbers.

- Company Web site: www.coinstar.com

    Ted Allrich