J.P Morgan: Coinstar Hits A Rough Patch as Q1 Guidance Disappoints

Unsurprisingly, Coinstar CSTR met 4Q expectations owing to the pre-announcement issued on January 14th. 2011 guidance was re-stated, but 1Q11 guidance was far below expectations because CSTR needs to work through the excess inventory issue over the course of several weeks. In short, 2011 will be more back-end loaded than originally anticipated, but J.P Morgan are sticking with the view that this is a temporary problem. CSTR met 4Q expectations reporting $0.68 EPS on sales of $391mm. As previously documented, 4Q was negatively impacted by the shift to 28-day window and inventory mis-management. 2011 guidance was reiterated, calling for EPS of $2.60-$3.10 on sales of $1.7-$1.85 billion, though adjusted EBITDA of $325-355mm, is being impacted by lower-than-anticipated margins for the Redbox business. The company continues to have a constructive view of its growth prospects, citing continued market share gain, Redbox sames store sales growth, higher average transactions, increased consumer engagement, and steady performance of the coin business. J.P Morgan has a $42 PT and Neutral rating on CSTR CSTR closed Thursday at $44.24