Outerwall Pushing Higher and Higher

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

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.

More from The Motley Fool 
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2833461, ~/Articles/ArticleHandler.aspx, 9/3/2015 11:50:41 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 3:59 PM
OUTR $61.69 Up +1.42 +2.36%
Outerwall CAPS Rating: ***
NFLX $101.06 Down -4.38 -4.15%
Netflix CAPS Rating: ***