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Coinstar Sells Money Transfer Unit, Analysts Applaud

25 Aug, 2010 By: Erik Gruenwedel

Analysts Aug. 25 hailed Coinstar Inc.’s definitive agreement to sell its money-transfer business and focus more attention on its core Redbox kiosk and coin businesses.

Coinstar, after the market close Aug. 24, said it agreed to sell the money transfer business to Sigue Corp. for $41.5 million in cash and stock.

“The divestiture allows management to focus on its core coin business and its fast-growing DVD business,” wrote Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, in a note.

Redbox endured an unexpected hiccup in its most recent financial period when accelerated closures of Movie Gallery, Hollywood Video and Blockbuster stores, coupled with new studio distribution agreements, did not result in stronger revenue and margins.

“We expect margins that were impacted by poor inventory management and negative leverage to reverse in [the third quarter], aided by the introduction of Blu-ray [Disc rentals] at a 50% price premium to standard-definition DVDs,” Pachter wrote. “Blu-ray should also help comps return to low double-digits.”

Eric Wold, analyst with Merriman Curhan Ford in New York, expects Coinstar to generate $388 million in third quarter revenue based on the installation of 2,250 new Redbox kiosks, improved individual kiosk revenue following the 28-day windows imposed by select studios, and a typically weaker Q3 release slate.

“Fortunately, following the [second quarter] miss, we believe expectations amongst investors are currently low,” Wold wrote in a note.

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