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Outerwall keeps rising after hedge fund buys stake

NEW YORK (AP) -- Shares of Outerwall climbed Monday after an activist hedge fund said it bought a stake in the Redbox parent and wants the company to consider strategic options, which could include a sale.

THE SPARK: Jana Partners disclosed Friday that it has bought 3.8 million shares of Outerwall, giving it a 13.5-percent stake in the company. That makes it the largest shareholder in Outerwall, which changed its name from Coinstar earlier this year.

In a filing with the Securities and Exchange Commission, Jana Partners it wants to meet with Outerwall's management to discuss options including a strategic transaction, the discontinuation or sale of some of its businesses, or a sale of the company itself. It said the company's shares are undervalued.

The Bellevue, Wash., company said Friday it welcomes the input of shareholders and regularly reviews its strategy and spending.

THE BIG PICTURE: Outerwall Inc. operates Redbox DVD rental kiosks and Coinstar coin-counting machines. It recently added a new ecoATM business, a self-serve kiosk system used to buy mobile phones, tablets and other electronics. In September the company cut its annual guidance because strong discounts were hurting its results.

Outerwall says it is also exploring possible new ventures in a variety of markets including food and drinks, entertainment, beauty and consumer goods, and electronics.

Before Jana Partners disclosed its stake Outerwall's largest shareholder was BlackRock Fund Advisors. BlackRock owns 2.2 million shares, or a 7.8-percent stake in the company.

THE ANALYSIS: Analyst Eric Wold of B. Riley & Co. raised his price target to $95 per share from $75 on the news. He rates the stock "Buy," and said Jana's investment demonstrates the value of Outerwall shares.

"While there is still a lot to prove with the Redbox turnaround, we believe an enhanced focus on capital allocation and new venture spending levels (possibly by outsourcing all of it) could drive an increased return of projected free cash flow to shareholders," he wrote.

SHARE ACTION: Outerwall stock gained $2.11, or 3.7 percent, to $59.21 in morning trading. The stock fell 11.6 percent on Sept. 17, after Outerwall cut its guidance, but since then the shares have recovered most of those losses. They rose 9.4 percent on Friday.