Analyst: Here’s What Investors Need to Know About Coinstar’s Earnings
The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Coinstar’s (NASDAQ:CSTR) EPS was above the high end of guidance despite another comps decline, demonstrating solid inventory management and tight cost control. Revenue was $564 million, compared with our estimate of $600 million, the consensus estimate of $579 million, and guidance of $552 – 302 million. NonGAAP EPS was $0.93, compared with our estimate of $0.80, the consensus estimate of $0.72, and guidance of at or above the high end of $0.62 – 0.77. Margins were better than expected due to better execution on inventory, and significantly better cost control than we expected.
Overall Redbox revenue continues to grow. Redbox revenue grew 9.6% in a difficult quarter, and grew 22.2% for the full year. While the rate of growth has slowed, revenues are still growing, and we expect further growth in 2013.
Year-over-year earnings guidance reflects an operating margin decline, notwithstanding an 23% increase in average kiosks. It is clear that Redbox is approaching market saturation, adding 8,300 kiosks to end 2012 at 43,700 kiosks. Guidance for 2013 suggests Redbox revenues will grow by 9 – 17% for the year, notwithstanding a 23% in average kiosks. Once again, investors should expect…
to see transactions per kiosk trend down in 2013.
Initial FY:13 guidance is for revenue of $2.375 – 2.555 billion and non-GAAP EPS of $4.91 – 5.51. Initial Q1:13 guidance is for revenue of $568 – 593 million and Non-GAAP EPS of $0.77 – 0.92.
We are decreasing our FY:13 estimate for revenue to $2.59 billion from $2.62 billion while maintaining our EPS estimate of $5.50. Our revised revenue estimate reflects a light release slate compounded by a challenging comparison in Q1, albeit easing throughout the year. Our EPS estimate remains as gross margin pressures should ease throughout the year, and we expect losses from Redbox Instant by Verizon (NYSE:VZ) to be greatest in 1H:13.
Maintaining our OUTPERFORM rating and 12-month price target of $66, which reflects a multiple of 12x our unchanged 2013 EPS estimate of $5.50. This is a discount to Coinstar’s historical valuation to reflect recent rental demand declines, increasing competition for the Verizon JV offering from Amazon (NASDAQ:AMZN) and others, the negative impact of the NCR kiosk acquisition thus far, an uneven profitability outlook, and long-term technology challenges.
Michael Pachter is an analyst at Wedbush Securities.