Market Overview

VeriFone Earnings Preview: Double-Digit EPS, Sales Growth Expected

VeriFone Systems (NYSE: PAY) is scheduled to report fiscal first-quarter 2012 results Monday, March 5, after the markets close. Shares surged recently on Mastercard's (NYSE: MA) announcement that it would be moving toward a new payment standard. VeriFone has enjoyed double-digit year-over-year percentage revenue growth for the past four quarters and its net income rise has increased in each of the past three quarters. Investors will be hoping for the trend to continue, as well as watching for the impact of recent acquisitions.

See also: JP Morgan Comments on MasterCard's EMV Announcement

Analysts are looking for VeriFone to report that its per-share earnings came to $0.52 for the quarter and that revenue totaled $417.5 million. In the same quarter of last year, the company posted $0.43 per share and $283.9 million in sales. Note that the EPS estimate is unchanged over the past 60 days. And analysts have underestimated VeriFone's per-share earnings in the past ten quarters.

Looking back to the previous quarter, the electric payments company said it earned $198.8 million, with adjusted EPS of $0.53. Revenue rose 48.8% to $410.7 million. Both EPS and revenue results topped analysts' expectations. The company benefited from a huge tax gain in the quarter. And CEO Douglas Bergeron said: “We finished 2011 with another year of record revenues and record profit, and are now midway through our multi-year transformation to the world's leading services-driven payment technology provider.”

Looking ahead, analysts so far expect to see sequential and year-over-year growth of both EPS and revenues in the current quarter. In fact, the consensus forecast has sales up 60.0% in the second quarter, which ends in April.

The Company

San Jose, Calif.-based VeriFone Systems designs, markets and services electronic payment solutions, including countertop electronic payment systems, secure PIN pads and wireless system solutions. The company serves financial institutions, payment processors, petroleum companies, large retailers, taxi fleets, government organizations, health care companies, independent sales organizations and advertisers. VeriFone now has a market cap of $5.0 billion.

Competitors include NCR (NYSE: NCR), ACI Worldwide (NASDAQ: ACIW) and JDA Software (NASDAQ: JDAS). All three of these rivals beat fourth-quarter EPS and revenue estimates, though the SEC is investigating JDA's accounting and its stock may be dropped from the Nasdaq.

See also: JDA Software Files Form 12b-25 with SEC

During the three months that ended in January, VeriFone completed the acquisition of Point, one of the largest providers of payment and gateway services and solutions for retailers in Northern Europe. Also, VeriFone saw its one millionth payment acceptance system installed in Russia.

See also: Verifone Acquires Global Bay to Expand Retail Mobility Strategy and Verifone Enters Long-Term Strategic Partnership with NBC-Owned Stations

Performance

Verifone's P/E and PEG ratios are less than the industry average. The company has a long-term earnings per share growth forecast of 23.5%. Its operating margin is better than the industry average, and the return on equity is 40.3%. Though short interest is 6.0% of the float, eight of the 12 analysts surveyed who follow the stock rate it a Buy or Strong Buy. None recommend selling shares. But their mean price target on the shares is only 3.2% higher than the share price at Friday's close.

Shares are trading 34.3% higher than at the beginning of the year, but still down 1.8% from a year ago, as well as 18.9% below the 52-week high of $58.88. The share price is well above the 50-day and 200-day moving averages. Over the past six months, the stock has narrowly outperformed competitors NCR and ACI Worldwide but more comfortably outpaced the broader markets.

ACTION ITEMS:

Bullish: Investors interested in exchange traded funds invested in VeriFone might want to consider the following trades:

  • First Trust Technology AlphaDEX (NYSE: FXL) is more than 14% higher year to date.
  • Vanguard Mid-Cap Growth ETF (NYSE: VOT) is more than 14% higher year to date.
  • iShares Morningstar Mid Growth Index (NYSE: JKH) is more than 13% higher year to date.
  • iShares S&P MidCap 400 Growth Index (NYSE: IJK) is more than 12% higher year to date.
Bearish:

Traders may prefer to consider these alternative positions in the same industry:

  • Virco Manufacturing (NASDAQ: VIRC) is up more than 32% year to date.
  • Diebold (NYSE: DBD) is up more than 29% year to date.
  • Steelcase (NASDAQ: SCS) is up more than 13% year to date.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: ACI Worldwide analyst forecasts Diebold Douglas Bergeron earnings previews ETFs Exchange Traded Funds Global Bay JDA Software mastercard NCR Point steelcase VeriFone Systems Virco ManufacturingEarnings Long Ideas News Short Ideas Previews Trading Ideas ETFs Best of Benzinga

 

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