Should You Buy Into VeriFone?



VeriFone Systems Inc. (NYSE:PAY) is the global leader in secure electronic payment solutions. It designs, markets, and services electronic payment solutions at the point of sale “POS” worldwide. It provides countertop electronic payment systems that accept card payment options, such as NFC, mobile wallets, chip and PIN, and contactless payments, as well as support credit and debit card, EBT, EMV, and other PIN-based transactions. It supplements these with an array of software applications and application libraries as well as portable solutions that support 3G, GPRS, Bluetooth, and WiFi technologies.

In addition, it provides mobile payment solutions for various segments of the mobile point of sale environment, contactless peripherals, network access solutions, security solutions,payment-as-a-service and other managed services, terminal management, payment-enabled media, and payment system security solutions. Further, the company offers equipment repair or maintenance, gateway processing, remote terminal management, software post-contract support, customized application development, helpdesk, customer service, warehousing, and encryption or tokenization services. It makes money by primarily serving financial institutions, payment processors, petroleum companies, transportation companies, government organizations, healthcare companies, quick service restaurants, taxi fleets, advertisers and media companies, merchants and retailers; and distributors, resellers, system integrators, and independent sales organizations. But should you buy the stock here?

The company is doing quite well. And I expect it to continue delivering. For the three months ended April 30, 2014 GAAP net revenues were $466 million, compared to $426 million a year ago, a 9 percent increase. Non-GAAP net revenues for Q2 FY14 were $467 million, compared to $430 million a year ago, a 9 percent increase. GAAP net loss per diluted share was $0.22, compared to a net loss of $0.54 a year ago. Non-GAAP net income per diluted share was $0.37, compared to $0.42 a year ago.

The company has upgraded fifteen top U.S. retailers to its MX 900 EMV-capable platform and added seventeen new end-to-end encryption clients which will help drive revenues moving forward. It also launched the portable VX 690, the first of several new EMV-capable devices with a new consumer design methodology. The company is making connections and has continued to strengthen partnership and business with Spain’s largest payment processor.It further expanded Payment-as-a-Service offerings to Turkey and signed an agreement with the top regional airline. Also helping the company was that it grew LiftRetail in-store marketing network to 1,600 convenience store countertops while it simultaneously increased at-the-pump marketing network to nearly 4,800 gas pumps across the U.S. It should be noted that In April and June of 2014, VeriFone approved restructuring plans in order to support its transformation initiatives. In connection with these restructuring plans, the company will reduce headcount by approximately 500 by calendar year end 2014. VeriFone expects to reinvest a substantial portion of the savings from these actions to improve its operational infrastructure and invest in its strategic growth initiatives.

CEO Paul Galant stated, “I’m very pleased with our second quarter financial results, which exceeded our guidance, and the continued progress in our operational initiatives. We continue to work to drive the next evolution of commerce for our clients by becoming their most trusted partner for terminals, Payment-as-a-Service and commerce enablement solutions. And, we are working with our clients to protect their brands and reputations from the growing threat of data breaches.”

Looking ahead to the third fiscal quarter of 2014 the company sees non-GAAP net revenues of $455 million to $460 million. It also expects to garner non-GAAP net income per diluted share of $0.33 to $0.34. For the full fiscal year 2014 the company sees non-GAAP net revenues of $1.825 billion to $1.835 billion. Finally it projects non-GAAP net income per diluted share of $1.42 to $1.44 for the year. All things considered, VeriFone is firing on all cylinders, and as such I recommend this stock as a buy.

Disclosure: Christopher F. Davis holds no position in VeriFone Systems and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $40 price target.

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