Wedbush Downgrades Outerwall; Cites Valuation, Lack Of Catalyst

Although Wedbush’s Michael Pachter believes Outerwall Inc (NASDAQ: OUTR) continues to be a value stock, the analyst has moved to the sidelines due to a lack of near-term catalysts.

Pachter downgraded the rating on the company from Outperform to Neutral, with a price target of $45.

Moving To The Sidelines

“Returning free cash flow to investors remains a priority, with its quarterly dividend and a renewed focus on reducing debt,” the analyst mentioned.

The company has a share buyback program in place and has used it extensively in the recent past. However, Pachter does not expect any further buybacks through 2017, due to activist shareholder pressure for Outerwall to focus on reducing debt.

Related Link: Roth Capital Upgrades Outerwall To Neutral, Raises PT To $35

Apart from the lack of near-term catalysts, the analyst expects DVD rentals to remain under pressure due to the upcoming Olympics.

No Reason to Own Stock

“Redbox margins may stabilize later in the year and investor friendly capital allocation could drive shares higher, but we have limited visibility into management’s seemingly improving execution,” Pachter stated.

Outerwall’s “uneven performance” has led to share price volatility, with the stock currently trading at a low multiple due to low confidence among investors in an earnings rebound.

The analyst also believes there is no reason to own the stock till the company is able to demonstrate revenue stability in Redbox, which is likely by Q4.

Pachter expects Outerwall to report its revenue and EPS ahead of the consensus forecasts when the company reports its 2Q16 results on July 28.

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