Two Quarterly Releases: The Cheesecake Factory and Coinstar

Well done, Cheesecake Factory, but I'm going to have point out your lousy comparable restaurant sales. The company said the metric declined 0.9%. Management will have to bring the comps up, as they are the key to ultimate success in this type of business.

I didn't come away from the release thinking Cheesecake Factory was a strong buy. Although there were positive elements to the fundamental story, I wasn't wholly impressed with the overall scenario on a relative basis (meaning I believe there might be better bets out there). However, the market clearly disagrees with me, and I do have to take notice of the fact that the stock is several cents away from the 52-week high as of Friday's close. Let's give credit where credit is due: any stock near a 52-week high in this market does stand out. The one-year price action on this one isn't bad, and while I think traders need to be careful with each and every move these days, I do perceive strength in the name. Cheesecake Factory is worth at least a single round of due diligence.

Coinstar (CSTR) expanded the top line by over 40% in the recent quarter. Earnings per share came in at 18 cents, good for a 20% increase. Unfortunately, according to The Wall Street Journal (subscription required), the market wasn't impressed by either the stellar performance or the guidance. Also, there is concern about litigation issues.

What's the source of the litigation? You can thank Coinstar's Redbox asset. I'm sure everyone is aware of Redbox: it's a self-service kiosk that rents movies for a buck. Studios aren't happy about that since the DVD industry is in decline; they don't want further erosion of the home video model to occur via the deflationary implications of cheap, convenient discs. Beth Gaston Moon mentioned this problem back in November. Steven Halpern also highlighted some analyst commentary concerning Redbox and the lawsuit activity. Furthermore, Walmart (WMT) and Target (TGT) aren't so thrilled about the threat from Coinstar, according to Barron's.

I do agree that Coinstar must offer a solution to the negative reaction to its $1-rental paradigm, but I think the company might make for an interesting long-term speculative play. I'm not sure anyone will be able to stop Redbox; the value proposition is obviously very popular with consumers (in addition, going back to the Steven Halpern article, Redbox may engage video game rentals at some point, an initiative that would likely brighten the future prospects). As always, though, wait for pullbacks before entering the stock, as a margin of safety in this instance is of extreme importance.

Disclosure: I don't own any company mentioned; positions can change without notice.