While The Rest Of The Street Is Downgrading VeriFone, Piper Maintains Overweight Rating

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While the rest of the Street is bearish on
VeriFone Systems Inc PAY
, Piper Jaffray maintains its Overweight rating, saying "the global POS terminal market is a secular growth market and PAY will improve its margin profile over time" as it consolidates operating systems and improves efficiency.

Shares of VeriFone plunged to a 52-week low after it reported lower-than-expected quarterly earnings and cut its full-year outlook. VeriFone reported second-quarter non-GAAP EPS of $0.47 versus consensus of $0.52 and lowered full-year EPS guidance to $1.85 from $2.21–$2.23.

A Differing Opinion

The miss/guide down was attributed to POS terminal pricing pressure and macro softness in Asia and LatAm, coupled with soft advertising media revenue and EMV certification delays in the United States.

"We believe the last two issues and the macro softness are temporary issues that will eventually pass. We believe the pricing pressures are partly macro-driven and partly structural leading us to reduce our LatAm/Asia growth expectations," analyst Jason Deleeuw wrote in a note.

Related Link: VeriFone Systems Slammed 30% After Massive Guidance Cut

Optimistically Cautious

Deleeuw believes VeriFone has undervalued long-term franchise value.

However, the analyst acknowledged that product cycle nature of the POS terminal business across many global markets can result in unexpected swings in earning expectations. He said the company is in a transition phase to reclaim market share, grow services revenue, and improve margins.

"Still, we see enduring franchise value in the business as PAY is benefiting from the 1) increasing complexity of payments (security, digital) and 2) being a leader in the global POS terminal market, which is enjoying secular annual growth of 7–8 percent (globally, many merchants still lack electronic payments)," Deleeuw highlighted.

In addition, the analyst noted that pricing pressures in Asia and LatAm likely greatest risks to his outlook that calls for FY ‘16/'17 non-GAAP EPS $1.85/$2.24 (down from $2.23/$2.60). The analyst forecast FY ‘16/'17 revenue of $2.090 billion/$2.115 billion.

Deleeuw also cut the price target to $27 from $38 while the shares plunged 22.22 percent to $21.95 after touching a new 52-week low of $19.71.

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Posted In: Analyst ColorLong IdeasPrice TargetReiterationAnalyst RatingsTechTrading IdeasJason DeleeuwPiper Jaffray
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