Monday, January 17, 2011

Coinstar (NASDAQ:CSTR) Q1 2011 Analysis

Recent price: 41.50$
P/E Ratio: 28.49
3 month Target Price: 59.29$

Company Description
As posted on their official website, Coinstar, Inc. is a leading provider of automated retail solutions offering convenient services that make life easier for consumers and drive incremental traffic and revenue for retailers. The company’s core automated retail businesses include the well-known redbox self-service DVD rental and Coinstar self-service coin-counting brands. The company has approximately 28,500 DVD kiosks and 18,900 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants.

Confidence Margins
Strong resistance $67.56 (+63%)
Light resistance $59.29 (+43%)
Light support $38.75 (-7%)
Strong support $35 (-16%)

Coinstar went down sharply recently after it announced a reduction for its fourth quarter earnings from continuing operations guidance to between $0.65 and $0.69 per share after the bell Thursday, from prior expectations of $0.79 to $0.85 per share. The company also reduced its forecast for the full year 2011, it is now expecting earnings from continuing operations to be between $2.60 and $3.10 per share, down from previously stated guidance of $3.00 to $3.50 per share. This should be seen as a temporary downturn. Even if the company is still in growth stage, a nearly 30% drop has to be seen as a short term opportunity to accumulate on this stock, it should be quickly back up in the 50$ levels.

Entry strategy
For the cautious investor:
Buy the stock for $42 or less.

For the risk-taking trader:
The best thing to do here is to purchase the April 2011 50$ call option contracts for about 135$ per contract. They should yield the highest return as the stock gets closer to it's target price.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 59$, or keep it until 65$ if your own analysis is very bullish.

For the risk-taking trader:
The moment to get out of the position should be the same as for the cautious investor. The investor must keep a look for any drop in the stock price that would cross a support line as it will have a disproportionate affect the option prices.

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