Coinstar's Serious Debt Load Concerns
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Coinstar Inc (NASDAQ: CSTR) announced a strong finish for Q4 and 2011 results. At the same time they announced a joint venture with Verizon (NYSE: VZ) and an acquisition from NCR (NYSE: NCR) to buy out their DVD business. Lots of flash and furry. Stock is up 20%. Stock is at the 52 week high. Wow, that trifecta of announcements got the market excited.
Check out the balance sheet. This company makes its money primarily from the Red Boxes where customers can rent DVD's through vending machines. So like you have to believe the whole on-line iPad, tablet, Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) thing can be beaten. That takes big cash. Really big cash. Coinstar has just doubled its long-term debt.
The announcements do not include any financials about proposed ongoing capital expenditures. The press release lets you know the acquisition price is $100 million. A nice round number subject to adjustments I'm sure. The press release also lets you know NCR will make $25 million per annum from the deal. An interesting tidbit. But what does the Coinstar shareholder make and when?
Coinstar has doubled is debt load and we know where $100 million is heading. The question becomes does Coinstar have the gas in the tank to achieve these high-sounding goals. No one knows what the price tags will be, but clearly they will be expensive. A few NASA engineers may conclude this rocket will not achieve velocity over a long-term basis. Some investors may learn this the hard way.
The company is pointing over the horizon without a road map. Time to ask for a lot more colour in the guidance.
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