UPDATE: Outerwall's (OUTR) Decline Seen as 'Overreaction'; B. Riley Upgrades to Buy

B. Riley upgraded Outerwall Inc. (NASDAQ: OUTR) from Neutral to Buy with a price target of $58.00. Shares decline after Outerwall reported disappointed guidance. However, analyst Eric Wold doesn't think its Q4 guide-down indicates accelerating Redbox decline, and he called the stock's post-market drop an overreaction.

"We had already been modeling a rather healthy decline in rental transactions in Q4 because of the disc slate and have seen multiple quarter impacts because of this in the past," said Wold. "We are not concerned that this one quarter represents any acceleration in secular declines within the physical rental industry that we have already been anticipating in the coming years. With that in mind, we believe the 24% decline in OUTR shares after the close represents an overreaction to a company that still dominates this market and has numerous levers to manage FCF."

"We have been on the sidelines waiting for an entry point and/or stabilization in the business following last year’s price hike and believe this post-close decline provides that entry point with our reduced 2016/2017 estimates now driving a FCF yield north of 30%. While this is not a major part of our call, we would not be surprised if this market dominance and attractive cash flow drives activist or buyout interest. We are taking this opportunity to upgrade Outerwall from to Buy with a lowered price target of $58.00 (down from $70.00)," added the analyst.

For an analyst ratings summary and ratings history on Outerwall Inc. click here. For more ratings news on Outerwall Inc. click here.

Shares of Outerwall Inc. closed at $58.06 yesterday.

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