Change counter Coinstar (NASDAQ:CSTR) will report Q4 2006 financial results on Feb. 8. Will there be any change left over for investors?

What analysts say:

  • Buy, sell, or waffle? Of the 11 analysts counting on Coinstar, six rate it a buy and five say hold.
  • Revenues. Revenues are expected to grow 11% year over year to $140 million, but that's flat sequentially.
  • Earnings. Profits are expected to be nearly cut in half, falling 48% to $0.13 per share.

What management says:
Management likes to describe itself as a provider of "fourth wall" services -- that is, the front end of stores, where not much is typically marketed or sold. Coinstar, however, is really a convenience purveyor; its function is to save consumers from the drudgery of rolling their spare change. For that service, the Motley Fool Hidden Gems recommendation exacts a hefty 8.9% fee, so that for every dollar counted, it takes a cut of $0.089.

It has been leveraging that service with the likes of Starbucks (NASDAQ:SBUX), Amazon.com (NASDAQ:AMZN), and Borders (NYSE:BGP) to spit out gift cards for those companies rather than receipts for cash. Consumers can then spend their bucks in those stores, and the retailers pay the fee. Coinstar also partners with Redbox, a kiosk movie-rental company owned by a subsidiary of McDonald's; its machines can be found in storefronts across the country, including at Wal-Mart locations.

Yet what drives more than half of the company's revenues is its entertainment division, which consists of skill-crane machines, bulk vending machines, and kiddie rides. It will continue to push these forms of revenues as it cuts costs.

What management does:
Despite the revenues that the entertainment segment brings in, it also has lower margins and has been dragging on performance as it has expanded its base. As a result, Coinstar has been working to consolidate field operations by creating a more efficient route structure and reducing the amount of drive time. Although operating expenses as a percentage of revenues dropped 90 basis points in the last quarter, it will still take some time for those efficiencies to fully pay off.

Margin

09/05

12/05

03/06

06/06

09/06

Operating

10.3%

10.6%

10.0%

10.3%

9.9%

Net

4.8%

4.8%

4.5%

4.1%

3.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
While retailers have long wasted the space between the cash register and the exit, Coinstar has been doing its part in making that "fourth wall" more profitable for the retailers and for itself. And although it has been expanding its presence, revenues last quarter came in at the low end of management's forecast range, and the fourth quarter has historically been soft relative to the third. With management estimating revenues in a range of $135 million to $145 million, it wouldn't be surprising to see the company come in at the low end again.

Related Foolishness:

Coinstar has earned a two-star rating from Motley Fool CAPS, the new investor-intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

Coinstar is also a recommendation of Motley Fool Hidden Gems. A 30-day guest pass lets you count the reasons why this has been a market beater for the small-cap stock selection service.

Starbucks and Amazon.com are recommendations of Motley Fool Stock Advisor. Wal-Mart and Borders are Motley Fool Inside Value picks.

Fool contributor Rich Duprey owns shares of Wal-Mart but of no other company mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.