JANA Partners filed an activist stake in Outerwall Inc (NASDAQ:OUTR) last Friday. The hedge fund, which has been very busy in the past weeks, has now disclosed a 13.5 percent position in the company that provides automated retail solutions. Outerwall Inc (NASDAQ:OUTR), formerly Coinstar, is well-remembered as the stock that Jim Chanos was shorting in 2012.

Outerwall

Barry Rosenstein doing well in hedge funds

JANA Partners put everything on the table in the 13D filing, saying that the fund could look at any options to increase shareholder value, including spinning off parts of business, selling out the whole company and plans to give back more return to shareholders. JANA Partners owns 3,777,995 shares of the company.

Barry Rosenstein’s JANA Partners has also been actively involved with other companies. The fund recently took a position in Safeway Inc. (NYSE:SWY), where he has a 6.2 percent position. The hedge fund is generating sizeable returns this year, and the flagship made a gain of 3.2 percent in September, now up +14.3 percent YTD, whereas the Nirvana Fund gained 4.8 percent in the last month, pushing overall returns to +22.2 percent and making it one of the best performing hedge funds of the year.

In response to the disclosure from Barry Rosenstein’s activist hedge fund, shares of Outerwall closed up 9.4 percent on Friday.  

Outerwall slashes FY2013 forecast

Shares of Outerwall plummeted on September 16, when the company slashed its earnings forecast for this year. The company projected a 6 percent reduction in earlier estimates for 3Q2013 revenue, updated guidance expects it to fall between $569-$589 million. EPS and EBITDA were cut drastically, expectation for core EBITDA was downgraded by 21 percent to $101-$109 million whereas EPS was cut to $0.82-$0.94, a decline of 38 percent . Outerwall also cut estimates for FY2013 revenue by 5 percent, Core adjusted EBITDA by 11 percent and EPS by 18 percent in the recent announcement.

Wedbush bullish, expecting a wolf pack of hedge funds

Wedbush expects that the new holding of Rosenstein will attract more hedge funds on board. So far, the stock is not popular at all among these investors; Soros Fund Management and Owl Creek have minor stakes in the company.. In the analysis of Wedbush’s analysts, the company can generate $300 million in free cash flow annually. This additional support would allow the Outerwall to return more to shareholders. Wedbush notes,

“We believe that there is room for cost-cutting, believe that the coin business can be sold for a significant sum, and believe that Outerwall’s balance sheet can support some level of debt that would permit the company to buy back a significant percentage of its stock.”

Wedbush rates Outerwall Inc (NASDAQ:OUTR) at outperform. Analysts further note that among Outerwall’s new ventures the company’s coffee business will contribute significantly to revenues, however, other operations may not generate growth over the next few years. The analysts seem optimistic about long-term growth, and note that management is focusing on new ventures by deploying capital from its core businesses of Redbox and Coinstar to these operations.