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Coinstar, Inc. (CSTR): Zacks Rank Buy

Tracey Ryniec

Coinstar, Inc. (NasdaqGS:CSTR - News) shook off the naysayers as it recently reported fourth quarter results which crushed the Zacks Consensus Estimate by 56%. Redbox sales are still hot and so is the stock, which soared on the news. However, this Zacks #1 Rank (Strong Buy) is still a value stock, with a forward P/E of 14.

Coinstar operates 35,400 Redbox DVD rental kiosks and 20,200 Coinstar coin-counting brands in supermarkets, convenience stores and other ease-of-use locations. For instance, the company just inked a deal to put Redbox kiosks in some of Chicago's subway stations.

Joint Venture With Verizon a Game Changer?

The company also recently announced a joint venture with Verizon to offer subscription services through video on-demand and the Redbox rental kiosks.

This is the company's first foray into the streaming business and is a direct shot across the bow of competitor Netflix.

Revenue Soared 33.2% in the Fourth Quarter

Apparently the small price increase on Redbox rentals instituted at the end of October, that had analysts and investors wringing their hands against a possible backlash, was a non-event.

Total revenue rose 33.2% to $520.5 million from the year ago quarter, but Redbox revenue surged 39.5% to $445.6 million. That was boosted by new kiosk installations, popular new release titles and the price increase.

Coin revenue also rose, but only 4.8% to $74.4 million.

Coinstar blew by the Zacks Consensus Estimate by 36 cents. Earnings were $1.00 compared to the consensus of just 64 cents.

2012 Guidance

2011 revenue was $1.8 billion. The company is projecting further revenue growth in 2012 with revenue between $2.075 billion and $2.25 billion.

Earnings per share are projected in the range of $3.80 to $4.30.

Analysts Raise 2012 Estimates

Given the big beat and the guidance, it's not surprising that the analysts moved to raise 2012 full year estimates.

9 out of 11 raised for the year since the earnings report pushing the Zacks Consensus up to $4.10 from $3.87 per share.

That is earnings growth of 13.5%.

Shares Soar But There's Still Value

Shares didn't do much in 2011 despite solid revenue growth and cheap valuations. But investors could not ignore the fantastic fourth quarter earnings report and shares spiked.

While shares aren't as cheap as when I last highlighted the company in December 2011, the company still has a forward P/E of 14 which is under the 15x cut-off I use to find value stocks.

It also has a price-to-sales ratio of 0.96. A P/S ratio below 1.0 usually indicates a company is undervalued.

Additionally, Coinstar has a fabulous 1-year return on equity (:ROE) of 23.4%.

Coinstar is a rare hot stock that is also still a value.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

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