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Market Preview: Big Gain Hangover

The stock is up 23% in the past year, but based on Friday's regular-session close at $49.65, it has pulled back 18% since hitting a 52-week high of $60.71 on July 13. The new year's been good to the shares, though, as Coinstar is up 10.4% so far in 2012, moving solidly above both its 50-day and 200-day moving averages of $46.36 and $46.09, respectively.

Benchmark previewed the quarter last week, and the firm thinks Coinstar, which operates the Redbox DVD rental kiosk business, should beat the consensus view, getting some help from the strategic missteps of rival Netflix (NFLX - Get Report).

"We believe the upside potential could come from stronger than modeled revenues, benefiting from continued weakness of Netflix share of physical DVD and at Blockbuster as shown by the NPD survey," wrote Benchmark, which is expecting earnings of 67 cents a share from Coinstar on revenue of $501 million.

The firm has a buy rating and a $70 price target on the stock, and it believes DVD rentals at Redbox have remained strong despite Coinstar's decision to raise the price of a one-day rental to $1.20 from $1 to account for costs related to the Durbin amendment. In the future, Benchmark expects Coinstar to be able to lessen impact of the amendment by at least 50%, which could provide upside in 2012 and beyond.

On the other hand, Dougherty & Co., which has a neutral rating on Coinstar with a $55 price target, is below consensus, forecasting earnings of 59 cents a share on revenue of $494 million for the quarter. Expect the firm to be active on the conference call because it's got lots of questions on a "variety" of issues.

"For starters, an update on the search for a new President of Redbox, especially given the recent disclosure that #2 Gregg Kaplan was taking a leave of absence until April?," Dougherty wrote in research issued Friday. "Also, given the expiration of the company's sourcing agreement with Warner Brothers, will the sourcing of discs at retail be a net positive given that the company can now get Warner titles on street date? What is the status of the company's negotiations with processors to lower debit card transaction fees or alternatively change its software to bundle transactions as another method of reducing costs?"

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