Coinstar and Dillard's: Value standouts

A quantitative ranking system considers these 2 stocks to be especially cheap.

By TheStockAdvisors May 16, 2013 9:34AM

Stock market report © CorbisBy Richard Moroney, Upside Stocks


Our Quadrix Value score reflects a stock's percentile rank on more than 20 variables, but four of the most effective metrics are the price-to-earnings, price-to-sales, price-to-cash flow and the enterprise ratio.


Screening for standouts on these four measures, Coinstar (CSTR) and Dillard's (DDS) are two especially cheap stocks.


Coinstar faces numerous questions regarding the future of DVDs and Blu-ray discs as faster cable speeds make streaming video an attractive alternative.


And though Coinstar and partner Verizon have launched a subscription service for streaming video, competitors Amazon (AMZN) and Netflix (NFLX) are already firmly entrenched in the business.


These concerns are evident in the stock, which ranks among the cheapest 25% of our research universe on all four key valuation ratios.


Seeking to extend its brand beyond the legacy business of coin-counting kiosks, the company also proposed to change its name to Outerwall and ticker to OUTR.


Shareholders will vote on the matter on June 27. Coinstar, with a Value score of 98 (out of 100) and an Overall score of 89, is a Best Buy.


Meanwhile, Dillard's operates about 300 department stores and clearance centers spread across 23 states in the South and Midwest.


For fiscal 2014 ending January, free cash flow could be constrained by a projected 28% surge in capital spending to $175 million, which would be the most since fiscal 2009.


The shares trade at 12 times trailing earnings, a 21% discount to their three-year average and 14% below the median department-store stock in the S&P 1500 Index. The stock also trades 20% below its peer group for price-to-cash flow.


Investors seem to have ignored the retailer's renewed focus on improving efficiency. By shuttering underperforming locations, Dillard's has reduced its store count by 9% in the past five years.


Operating margins have risen four consecutive years. And same-store sales have climbed in 10 straight quarters, with an average gain of 4.0%. Dillard's is a Best Buy.


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