We recently downgraded our recommendation to Neutral from Outperform on VeriFone Holdings (PAY).
VeriFone continues to impress backed by strategic acquisitions and a growing high margin services mix in total revenues. This high margin services business is being propelled by new offerings such as London taxi, Secure PumpPay and mobile payments growth.
The recent acquisitions of Hypercom and Point strengthen the company’s foothold in Europe along with driving significant synergies.
VeriFone recently completed the acquisition of Point, which provides payment and gateway services and solutions for retailers in Northern Europe. VeriFone intends to extend the Point platform throughout the region and beyond, with the aim of creating the world's largest infrastructure for rapid deployment of alternative payments. With the addition of Point, management expects services revenue will now exceed 30% of total revenue by the second quarter of 2012. Management aims to create a services-based solutions business, with 50% services revenue by the end of fiscal 2015. We believe that this acquisition is a positive for the company, since it expands the product portfolio as well as accelerates the mix of revenues towards higher margin services revenues.
Meanwhile, VeriFone also completed the acquisition of Global Bay Mobile Technologies, a leading provider of next-generation mobile retail solutions.
However, earnings estimates have declined of late even though earnings beat estimates in the first quarter of fiscal 2012. Although VeriFone is growing through acquisitions, organic growth remains a matter of concern. We believe that the integration of Point operations is taking a toll on margins.
We believe the risk-reward equation is balanced at current levels and hence downgraded our recommendation to Neutral from Outperform. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.
VERIFONE HLDGS (PAY): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment