Hedge Funds Dig into Coinstar
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Coinstar (NASDAQ: CSTR) -- $47.40
SumZero Analysts Following Coinstar: 38
SumZero Investment Reports on Coinstar: 5
SumZero Community Sentiment:
68% Long, 21% Short, 11% Hold
SumZero Consensus Price Target:
Mean: $58.00 per share
Median: $65.00 per share
Quick Business Description:
Coinstar dominates the coin counting machine market (the market for which CSTR is best known), and the company has a 50% investment in a company (Redbox) which is participating in the growing self serve DVD kiosk market. CSTR has a few other minor businesses that fit within their “fourth wall” strategy which include entertainment machines, e-pay, and money wires, that are not significant cash flow generators.
Customers:
Wal-Mart (NYSE: WMT), Walgreen (NYSE: WAG) and Roger are the biggest three customers representing 43% of sales.
Competitors:
In the physical kiosk space, it is NCR who owns the blockbuster kiosks. NCR has been rumored for months to have ~10k stores. In terms of digital, Apple (NASDAQ: AAPL), (NASDAQ: NFLX), HULU & Amazon.com (NASDAQ: AMZN).
SumZero's Differentiated Market Insight:
“This is a very straight forward business model. It is both simple and capable of generating significant free cash flow. It is “low brow technology” that presents both a compelling value proposition to consumers and fundamental investors. It also has the right market dynamics including high short interest and very low investor expectations.” Hedge Fund. New York, NY.
“Claim: The movie rental business is antiquated technology that will be replaced by digital distribution. Counterargument: History has shown that often older technologies are around longer than expected and new technology adoption takes longer. (See old Citigroup’s old telecommunications analyst, Jack Grumman’s January 2000 report regarding imminent arrival of 3G as an example). DVD’s are a fixture in most households so very little reason to just discard them. Redbox also offers the consumer very favorable pricing versus both traditional video rental places and digital competitors with better content. Studio executives that are focused on digital market as next big thing still expect a minimum 10 year run on DVD’s.” Hedge Fund. New York, NY.
“For all of the revenue misses during 2010, the business still grew 39% percent while generating record cash flows. The business is trading at 9x LTM cash flow and with some removal of other growth capital expenditures; it could be trading closer to 5-6x. Its return on capital has averaged 13% over past two years. It also has a tremendous cash flow yield such that if the company is trading at 3-4x EBITDA with a 10% cash flow yield – it should be a target for private equity. ” Hedge Fund. New York, NY.
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