BRIGANTINE ADVISORS DIGITAL MEDIA
November 6, 2009
BUY (CSTR, $29.80)
Solid Quarter But
November 6, 2009
Steven B. Frankel, CFA
Conclusion: Coinstar posted solid Q3 results – beating on the top line (adjusting for the sale of
the Entertainment business) and EPS and coming roughly in-line in terms of EBITDA. However, a
downtick in comparable store sales at Redbox and the fact the company didn’t raise forward
guidance sent the stock down in the after-market.
Despite the near-term disappointment in terms of Q4 guidance, we continue to believe Redbox is a
concept that still has plenty of room to run and should fuel strong growth in 2010 and beyond. We
are maintaining our Buy rating and $38 Price Target, based on 5.8x EV/2010E EBITDA, and see the
post-quarter weakness as a buying opportunity.
■ Q4 Guidance Unchanged: Despite some upside in the quarter, management did not raise
guidance, which is a clear disappointment. We believe the company is being conservative,
especially given the slate of hit movies coming in Q4, including tent pole titles from Redbox-
friendly studios like Up (Disney) and Star Trek (Paramount). Reflecting the sale of the
Entertainment business, our Q4 estimate goes from $351.3M/$0.30 to $324.8M/$0.30 and our full
year estimate is now $1.14B/$1.04 (up from $1.259B/$0.85, reflecting the removal of losses in the
Entertainment business). Looking to next year, we going from $1.6B/$1.40 to $1.5B/$1.45.
■ Valuation: The stock was trading in the after-market at $29.80, implying a multiple of under 5x
EV/2010E EBITDA, well below the 7.4x our Digital Media Group is trading at currently. We believe a
solid Q4 performance should restore investor confidence in the story and expand the stock’s
multiple. Our Price Target on Coinstar remains $38, which is based on 5.8x EV/2010E EBITDA.
Despite the near-term disappointm