Outerwall Pushing Higher and Higher

Techy kiosk firm Outerwall (NASDAQ: OUTR  ) has been a polarizing stock for some time, but it appears the bulls are winning these days, as the company recently touched its 52-week high. The company, which owns Redbox and Coinstar, among others, is proving doubters wrong, at least for now. Some analysts and investors question the long-term viability of Redbox, given the ongoing shift to streaming media from physical -- and it's a valid concern. Outerwall continues to tack on new locations in front of grocery stores and 7-Elevens, but what happens if demand shifts? Still, it's hard to deny the company's current success. Coupled with a Dutch auction $350 million buyback, Outerwall may be one of the most shareholder-friendly tech businesses out there.

Full rent
On an adjusted basis, the bottom line climbed high in the fiscal fourth quarter -- from $1.01 in 2012's quarter to $1.68 in this one -- well above analyst estimates of $1.25 per share. Revenue grew 5% and also outpaced the Street's expectations.

Redbox sales rose just 2%, while Coinstar posted 8% growth. The company's latest venture, ecoATM (an electronic recycling kiosk), along with other new ventures, posted the greatest numbers. The segment topped $16 million in sales, up from $293,000 in the year ago quarter.

Outerwall's asset-light, cash-flow-centric business is one that even the most tech-averse investor could love. Even better, its sub-12-times forward earnings multiple makes it look much more like a retailer than a high-growth Silicon Valley play.

Listening in
Last year, Outerwall attracted activist investor interest because of capital allocation practices. Essentially, the investor wanted cash flow to breathe a bit more with fewer capital expenditures. The company appears to have taken heed, as it has a slower growth plan for ecoATMs and fewer dollars dedicated to the New Ventures segment in general. This leaves us with a company that could foreseeably generate  $200 million or more in cash flow in the current year. With a market cap of less than $2 billion, this raises yet another encouraging valuation signal for the company.

Then, there is the question of Redbox. Will Netflix and the bevy of streaming options eventually wipe out the DVD rental business? If so, what happens to the thousands of kiosks around the country and the bulk of Outerwall's revenue?

Over the very long run, this certainly has validity, but it won't affect Outerwall substantially in the foreseeable future. For one thing, as the shift continues to streaming and fewer people buy movies at retailers, Redbox's cost-friendly kiosks will actually benefit from a market share gain. In the long run, the segment will provide enough cash flow to the company (and investors) to mitigate any current risk.

Still looking good
Even at a 52-week high, Outerwall has an appealing valuation and prospect for capital appreciation. The $350 million buyback (conducted in a shareholder-friendly method) could take up to one fifth of the shares off the table by year's end.

The company trades at 11.78 times forward earnings and has an EV/EBITDA of just 4.88. While comparisons are difficult given the line of business, Outerwall's numbers look cheap across any sector—especially technology. Based on cash flow prospects and a shareholder-friendly management team, Outerwall should deliver even better times ahead.

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