Coinstar Earnings Preview: Strong EPS, Revenue Results Expected

Coinstar CSTR is scheduled to report its second-quarter 2011 results Thursday, July 28, after the markets close. Coinstar's Redbox DVD rental business may ultimately benefit from Netflix's NFLX recently announced price change, but for the second quarter, investors no doubt will be keeping an eye on the growth in rental revenue and in the number of kiosks. Analysts are looking for the self-service kiosk operator to report earnings of $0.81 per share, which is up from $0.39 in the same period of last year. That estimate is also up from $0.79 per share 60 days ago. The analysts' forecast also calls for the company to post revenues of $445.9 million, an increase of 30.3% from a year ago. Note that is above Coinstar's recent revenue guidance. Analysts have underestimated Coinstar's per-share earnings in the past five quarters; in the first quarter earnings results were more than double the consensus estimate. Also, analysts so far are looking for sequential and year-over-year growth of both earnings and revenue in the current quarter. The Company Bellevue, Washington-based Coinstar operates automated retail businesses under the Redbox self-service DVD rental (more than 30,000 kiosks) and Coinstar self-service coin-counting (about 19,000 kiosks) brands. The company's kiosks can be found in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. The company was founded in 1991. During the three months that ended in June, Redbox announced that it would begin offering video game rentals, and Coinstar announced a deal to put kiosks in Safeway SWY grocery stores. Coinstar also appointed a new chief customer officer. Performance The company has a long-term earnings per share growth forecast of 22.3%. Its forward P/E ratio estimate is less than the trailing P/E ratio, and it has a PEG ratio of 0.7. The consensus recommendation has been to buy the stock for more than 90 days; 12 of 18 analysts now rate CSTR a Buy or Strong Buy. Their mean price target (where analysts expect the share price to go) is currently $62.88 per share. The share price closed Tuesday at $51.68, down from about $60 late last week, following lowered revenue guidance and the announcement of an executive departure. But shares are still 25.9% higher than six months ago. In that time, the stock has outperformed the specialty retail industry average and the broader markets, but it has underperformed Netflix. Action Items: Bullish: Traders interested in exchange traded funds invested in Coinstar might want to consider the following trades:

• Vanguard Small-Cap Growth Index Fund VBK: up 32.9% in the past year
• iShares Russell 2000 Growth Index Fund IWO: up 30.0% in the past year
• iShares S&P SmallCap 600 Growth Index Fund IJT: up 29.4% in the past year

Bearish: Traders looking for contrarian option might want to consider these positions:

• ProShares UltraShort Russell2000 Growth SKK: up 150.1% year to date
• ProShares UltraShort SmallCap600 SDD: up 122.3% year to date
• Direxion Daily Small Cap Bear 3X Shares TZA: up 119.1% year to date

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