Analysts: All Options on the Table for Outerwall

From selling off parts of its business to going private, analysts say the Redbox parent company has several paths to choose from
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After Outerwall, parent company of DVD and Blu-ray Disc kiosk operator Redbox, shared news March 14 that it was exploring “strategic and financial alternatives” to boost its stock, more than one analyst took that to mean anything from selling off certain divisions to Outerwall going private.

“All options are on the table,” Eric Wold, analyst with B. Riley & Co. in Los Angeles, wrote in a note to investors. “With the legacy Coinstar business throwing off solid and consistent cash flows, the dominating Redbox business in decline, but still throwing off attractive cash flows and the ecoATM business struggling to stem losses, we understand all strategic options will be considered at this point.”

He said considering that Outerwall’s shares have dipped almost 50% in just over two years, the company could be looking at selling its coin-counting division Coinstar or shutting down its electronics recycling kiosk unit ecoATM.

“Even though we could envision numerous scenarios to be put into place by Outerwall’s board to improve the balance sheet and forward cash flows, we cannot rule out the possibility that the board chooses to keep the entire company intact (initially) and move to incorporate more of these changes as a private company,” Wold wrote.

Meanwhile, Michael Pachter, analyst with Wedbush Securities, said the March 14 announcement may have been in response to a letter to Outerwall’s board from activist shareholders Engaged Capital, which encouraged the company to do everything from selling just ecoATM to looking at selling the entire business.

“As it explores strategic alternatives, we assume that it will seek buyers for both the ecoATM business as well as exploring an option to take the company private,” Pachter wrote in a note to investors. "Outerwall remains a value stock. Returning free cash flow to investors remains a priority, with an increased quarterly dividend, now at 60 cents, reducing debt, and continuing share repurchases.”

Outerwall shares closed March 15 at $37.49, up 9%.

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