VeriFone Systems, Inc. PAY is set to report second quarter fiscal 2015 results on Jun 4, after the market closes. Last quarter, the company posted a positive earnings surprise of 15.63%. The company has delivered positive surprises in the trailing four quarters, with an average beat of 17.97%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
In the last quarter, VeriFone posted strong results with both the top and bottom lines exceeding expectations. However, the company lowered its non-GAAP revenue and earnings guidance for fiscal 2015.
We believe that the company’s initiatives related to business transformation; cutting down on overlapping solutions, shifting R&D to new, fast growing solutions; and streamlining of data centers, legal entities and facilities are likely to improve its operating fundamentals in the long run.
Further, VeriFone expects an increase of 30% in the EMV terminals market after the EMV chip card fraud liability shift of Oct 2015, which will make it mandatory for merchants to install EMV-capable terminals. Rising demand for terminal solutions will likely bode well for the company, especially with the entry of tech giants like Apple Inc. AAPL and Samsung in the mobile payments industry.
VeriFone is also benefiting from its strategic partnerships and acquisitions. In the quarter, the company partnered with First Data Corp., Harbortouch and renewed its alliance with Heartland Payment Systems HPY which is likely to drive growth over the long run. Additionally, the company acquired GoPago, which is a positive.
However, investments in new product development will keep margins under pressure in the near term. Further, VeriFone faces significant competition from a number of local providers in the domestic, international as well as emerging markets such as China and India. Given the attractive prospects of the electronic payment system and services market, there are always new market entrants who seek to leverage on shifts in technology or product innovation to attract customers. At the same time, we believe VeriFone’s highly leveraged balance sheet can limit its developmental activities.
VeriFone expects non-GAAP revenues in the range of $485 million–$489 million for the second quarter of fiscal 2015 while non-GAAP earnings per share are forecast to be between 41 cents and 42 cents.
Earnings Whispers
Our proven model does not conclusively show that VeriFone is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:
Zacks ESP: VeriFone’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 33 cents per share.
Zacks Rank: VeriFone carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stock to Consider
Here is a stock that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:
Burlington Stores Inc. BURL has an Earnings ESP of +5.00% and a Zacks Rank #3.
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