2/14/2013
By David Urani

Action in CoinStar (CSTR) this week seems weird because management guided its 1Q outlook way lower last week, but now it's coming back strongly. The stock sold off last Friday after beating EPS estimates by $0.17 but missing on revenues and guiding Q1 earnings and revenue well below consensus (EPS of $0.77-0.92 vs. $1.19 consensus).  It seemed like Netflix (NFLX) was doing better in 4Q based on their recent quarter, which saw the stock surge upon reporting. CSTR's comps are slowing, with Redbox same-store sales having fallen 4% in 4Q12, and they may continue to decline through the first half of the year. However we do note that full year guidance was in line with consensus.

The reason CSTR has been able to come back this week must be the valuation, as after a couple of disappointing quarters it's now at a discount 9.5 forward PE and 0.6 PEG. On that note though, EPS estimates have been coming down for the past few months and I'm not seeing a big growth driver, especially if NFLX is back in the game. We would also note growing competition in the industry from the likes of Amazon (AMZN) and others, although CSTR does continue to take share in the physical DVD market.

Cheap valuation and a 44% short float could make this a squeeze candidate from time to time for traders on any bit of good news (just today it's making a push through $54.00 resistance on higher than average volume), but the fundamentals do seem to be deteriorating right now and it's probably not a stock you want to hold for very long.

David Urani
Wall Street Strategies