Coinstar’s New Earnings Outlook has This Analyst Changing Expectations

After the close on Thursday, Coinstar (NASDAQ:CSTR) preannounced Q2 results. The company expects revenue of $434 – 436 million, compared with prior guidance of $430 – 450 million, and EPS of $0.96 – 1.00, compared with prior guidance of $0.76 – 0.86.

FY:11 guidance increased. Coinstar expects revenue of $1.76 – 1.85 billion, compared with prior guidance of $1.73 – 1.85 billion. EPS is expected to be $2.90 – 3.15, compared with prior guidance of $2.75 – 3.10. EPS is expected to be higher in Q3 than in Q4 due to a greater percentage of lower-margin day-date studio releases in Q4.

Adjusting our estimates to reflect guidance. For Q2:11, lowering our revenue estimate to $436 million from $450 million, but raising our EPS estimate to $0.99 from $0.88. For FY:11, maintaining our revenue estimate of $1.85 billion, but raising our EPS estimate to $3.20 from $3.16. For FY:12, maintaining our revenue estimate of $2.10 billion, but raising our EPS estimate to $4.00 from $3.95.

Higher guidance overshadowed by resignation of Mitch Lowe, Redbox’s President since 2009. Lowe’s resignation was a surprise, as he appeared to be entrenched in the management team. While we consider him a visionary, we are less concerned about the loss now that the company is mature, and its focus is on executing on its business plan.

Coinstar has entered into a new credit facility agreement with a $450 million revolving line of credit and a $175 million five-year term loan facility.

Coinstar announced a $250 million stock repurchase authorization, which takes its total authorization up to $262.5 million. If executed in full, the buyback will be accretive by $0.50 – 0.70 per share in FY:12.

Maintaining our OUTPERFORM rating and our 12-month price target of $72, which reflects a multiple of 18x our 2012 EPS estimate of $4.00. This is a slight discount to Coinstar’s historical valuation to reflect competition, an uneven visibility outlook, and long term technology challenges. Coinstar shares remain on the Wedbush Securities Investment Committee’s Best Ideas List.

Coinstar will report its Q2 2011 (June) results after the market close on Thursday, July 28, and host a conference call at 2:00pm PT (Dial-In: 888-396- 2369, Passcode: 60844302, Webcast: IR section of www.coinstarinc.com).

Michael Pachter is the entertainment analyst at Wedbush Morgan.