Coinstar Inc. - Aggressive Growth

Coinstar, Inc (CSTR) is coming off of its seventh consecutive earnings surprise, which sent shares to all-time highs.

While the valuations look high initially, with earnings expected to more than triple investors do not mind paying a premium.

Company Description

Coinstar is best known for its coin-counting kiosks in many convenient or grocery stores. However, the company also owns the increasingly popular redbox kiosks, a self-service DVD service. The company has roughly 40,000 kiosks.

"Exceptional" Quarter

Coinstar said its top line grew 42% , to $380 million, during the third quarter, which was announced on Oct 28. The cash cow remains to be the DVD revenue, rising over 54% to $306 million.

Investors were more than happy with earnings per share coming in 15 cents higher than expected, at 66 cents. This was Coinstar's seventh consecutive earnings surprise.

Estimates Climbing

The CEO described the results as exceptional and went on to raise guidance, which spurred analysts to do the same.

After 8 upward revisions the Zacks Consensus Estimate for fiscal 2010 is up 24 cents, to $2.19. Next year's projections are up 52 cents on average, to $3.32.

Given these targets, earnings are expected to more than triple by the end of 2011, given the $1.06 earned in 2009.

Valuations

Shares of CSTR are not quite the bargain that the DVD rentals are, but at 19 times the 2011 estimates and with a PEG of 1.4, it is not overpriced either.

In fact, these valuations are lower than the historic averages for CSTR. Also, as long as the growth story keeps improving, investors have not trouble buy up shares.

The Chart

Following the earnings release, the stock quickly jumped to an all-time high after the news. CSTR is taking a breather right now, but as investors get used to the higher price, it should continue higher.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service
 
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