Wedbush Initiates Coverage on Coinstar (CSTR) with an Outperform Nov 25, 2009 08:51AM Wedbush initiates coverage on Coinstar (Nasdaq: CSTR) with an Outperform, price target $35.
Wedbush analyst says,"The recent stock sell-off, despite solid earnings, appears to reflect belated investor realization of Redbox's difficult relationship with some studios. Although we expect the work-around process to lower gross margin, we believe that revenues are poised to grow rapidly, driving much higher 2010 EPS growth than consensus estimates. Our $35 price target reflects a ~20x forward P/E multiple, in line with the cash-adjusted multiple we assign to Netflix (Nasdaq: NFLX), although a slight discount to the company's historical valuation."
Coinstar (CSTR) shares are trading higher this morning after Wedbush analyst Michael Pachter picked up coverage of the company with an Outperform rating and a $35 price target. The stock closed yesterday at $26.03. The bullish stance reflects his upbeat view on the company’s Redbox DVD rental kiosk unit.
While Pachter says the company could lose its suit against NBC-Universal over DVD windowing, he contends that Redbox kiosks will provide solid growth over the foreseeable future. “We believe that higher potential cost of sales can be offset by higher pricing for movie rentals,” he writes.
A recent sell off in the stock, he contends, reflects belated investor realization of the company’s difficult relationship with some major movie studios, forcing the company to buy copies of new releases from NBC-Universal, 20th Century Fox and Warner Bros. in the open market. In some cases, the company has not been able to get as many copies of hit films as it would ideally like. And the “work-around” of buying films in the open market also raises the company’s costs.
But Pachter says the company nonetheless should continue to post strong revenue and profit growth. He sees 2009 revenue of $1.15 billion, up 26% from 2009; for 2010 he sees $1.54 billion, up 34%. Pachter sees EPS this year of $1.02, up from 50 cents last year; for 2010 he sees $1.75, well ahead of the Street at $1.52.
“With revenues expected to grow so fast, even with lower margins, we believe the Street is vastly underestimating the company’s overall profitability next year,” he writes.
Market Report -- In Play (CSTR)November 25, 2009 8:40 AM ET eCoinstar Inc (CSTR) Briefing.com newsCoinstar initiated with a Outperform at Wedbush Morgan; tgt $35 Wedbush Morgan initiates CSTR with a Outperform and price target of $35. The firm notes that notwithstanding the likelihood of losing its lawsuit against NBCUniversal, the firm expects CSTR's Redbox kiosks to provide solid growth over the foreseeable future. The firm believes that higher potential cost of sales can be offset by higher pricing for movie rental, and the firm believes that CSTR has the opportunity to provide significant revenue and earnings growth from its Redbox business.