Stocks to Buy – Outerwall (OUTR)
The manufacturer of the Coinstar and Redbox kiosks has a short interest of 8.5 million shares. Investors have become skeptical of its future plans in large part because it can’t seem to provide consistent earnings guidance.
OUTR stock started the year projecting core diluted earnings per share from continuing operations in 2013 of at least $4.91. In Q1 that increased by 14 cents to $5.05, another 71 cents to $5.76 in Q2, and then boom — the floor fell out in September when it announced updated fiscal 2013 guidance that cut EPS by 18% to $4.72. By mid-December, that number was back up to $5.44 as OUTR discontinued its Rubi, Crisp Market and Star Studio ventures.
In the span of five months, Outerwall’s business hit the proverbial skids only to rebound slightly due to the exclusion of EPS losses from its three discontinued ventures. On the surface, it might appear to be nothing more than an accounting gimmick but none of these ventures had any real promise, so it makes sense to cut and run.
By far the most promising new venture is its ecoATM automated kiosk that buys old cell phones, MP3s, tablets, etc., for cash and then safely recycles them. Outerwall paid $341 billion to acquire the San Diego-based company that developed the machine and expects ecoATM to be accretive to earnings in 2014.
That savvy acquisition — and the fact that it generates free cash flow on a consistent basis — are the reasons that OUTR stock is on my stocks to buy list.