KeyBanc: VeriFone Investors May Want To Wait For More Momentum

VeriFone Systems Inc PAY reported fiscal fourth quarter earnings after the close Tuesday. 

The Analyst

KeyBanc Capital Markets' Josh Beck maintains a Sector Weight rating on Verifone's stock with no assigned price target.

The Thesis

Verifone's earnings report consisted of an EPS and net revenue beat and was also highlighted by continued "portfolio-grooming, Beck said. The analyst said this was achieved through:

• The divestiture of its taxi business, which should improve operating margins moving forward.
• Restructuring a Chinese business into a minority holding during the third quarter.
• Creating a petro media 50/50 joint venture. 

The actions taken by management did result in a revision in 2018 estimates, as 2017 adjusted revenue was $118 million lower than reported results, Beck  said. Verifone is likely to see a $70 million headwind from a delayed Petro EMV cycle and India demonetization in 2018, the analyst said. This means the company is now likely to see a 5- to 6-percent core growth rate next year.

KeyBanc has an $18 fair value estimate on the stock, which is based on a 12.4x multiple on the firm's fiscal 2018 EPS estimate. While this is a discount to the S&P 500 index at 18x, "investors may want to wait to see greater momentum with new products and services to support the bull case or further market issues underlying the bear case," Beck said. 

Price Action

Shares of Verifone were trading lower by nearly 4 percent late Wednesday morning.

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