Tags: Coinstar | Profit | Forecast | Exceed | Estimates

Coinstar Rises as Profit, Forecast Exceed Estimates

Friday, 29 Oct 2010 04:22 PM

Coinstar Inc., owner of the Redbox movie-rental kiosks, jumped the most in five years in Nasdaq Stock Market trading after its third-quarter profit and 2011 forecast exceeded analysts’ estimates.

Coinstar, based in Bellevue, Washington, rose $11.32, or 24 percent, to $57.58 at 4 p.m. in New York, the biggest gain since October 2005. The shares more than doubled this year.

The company, along with Netflix Inc., will continue to profit from rentals of DVDs because they offer consumers better value than video-on-demand or rentals available through cable or satellite services, said Michael Pachter, an analyst at Wedbush Securities in Los Angeles who has an “outperform” rating on Coinstar’s shares. The company plans to expand into online service next year.

“It’s them and Netflix; they’re going to divide the world,” Pachter said in an interview. “Because Coinstar offers lower rental costs than VOD at slightly less convenience, there’s a lot of room for these guys to grow.”

Profit from continuing operations rose to $21.4 million, or 66 cents a share, from $11.6 million, or 38 cents, a year earlier, Coinstar said in a statement. That beat the 50-cent average of seven analysts’ estimates compiled by Bloomberg.

Sales climbed 42 percent to $380.2 million, the company said, compared with the $381.8 million average of 12 estimates. DVD revenue jumped 54 percent.

Taking Customers

Coinstar, with about 28,500 DVD kiosks, is picking up customers as Blockbuster Inc. and Movie Gallery close stores. Movie Gallery, based in Dothan, Alabama, filed for bankruptcy protection in February and is liquidating. Blockbuster, the Dallas-based movie-rental chain, also declared bankruptcy and is closing some outlets as it seeks to restructure its debts.

This quarter, Coinstar forecasts revenue will rise to $415 million to $440 million and earnings will increase to 79 cents to 85 cents a share. Analysts were projecting 77 cents on sales of $422.5 million, the average of eight estimates compiled by Bloomberg.

In a filing, Coinstar projected 2011 profit of $3 to $3.50 a share from continuing operations on revenue of $1.8 billion to $1.95 billion. On that basis, the company was projected by analysts to earn $2.93 a share on sales of $1.8 billion, the average of 10 analysts’ estimates compiled by Bloomberg.

Digital Strategy

Coinstar plans to form a partnership in 2011 with an existing player in digital downloads to save money on building its own infrastructure and gain faster access to content, Chief Executive Officer Paul Davis said on a conference call.

“It’s really getting down to choosing the right partner,” said Davis, who declined to answer questions about the exact timing of its planned digital rollout.

Citing the company’s plan to begin offering digital downloads, Northland Securities analyst Darren Aftahi boosted his rating on the stock to “outperform” from “market perform” and raised his price target for the shares to $71.

Investors have been waiting for Coinstar to outline a strategy for responding to consumers’ growing preference for downloading videos, according to Paul Coster, a JPMorgan Chase & Co. analyst who rates the stock “neutral.”

Netflix, which mails DVDs and streams movies, said last week it signed up 1.93 million new subscribers in the third quarter, raising the total to 16.9 million.

“DVD kiosk revenue opportunity will peak in 2011 owing to loss of share of the home entertainment market to online video services,” Coster wrote in an Oct. 25 note to investors.

Streaming Services

Sonic Solutions, based in Novato, California, provides turnkey streaming service for retailers Best Buy Co. and Sears Holding Corp., while online provider Amazon.com Inc. offers DVD purchases by mail and download.

Coinstar has expanded its test of video-game rentals through its kiosks to 4,500 locations in the Southeast, Southwest and Midwest from 200 previously, company executives said on the call.

Including discontinued operations in both periods, Coinstar reported net income fell to $19.5 million, or 60 cents a share, from $41.4 million, or $1.34, a year earlier.

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