California-based VeriFone Systems, Inc. (PAY) reported a net income of $20.2 million or 23 cents in the second quarter compared to $10.7 million or 13 cents in the year-ago quarter. Excluding one-time charges but including stock-based compensation expenses, net income was 24 cents per share, beating the Zacks Consensus Estimate of 22 cents.
Additionally, management provided upbeat guidance for the third quarter and upgraded its outlook for fiscal year 2010. The encouraging guidance provided by management helped push up the share price.
VeriFone designs, markets and services a transaction automation system that facilitates electronic payments between consumers, merchants and financial institutions.
Let us now take a detailed look at the earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the short term and long term outlook for the stock.
Earnings Report Review
Revenues of $240.7 million in the second quarter were up 7.7% sequentially and 19.4% year over year. The growth in revenues was driven by robust PCI PED upgrade demand in North America and a rebounding Latin America business. The growth more than offset an anticipated seasonal decline in Asia and some weakness in the Balkans.
Management upgraded its guidance for 2010. VeriFone projects revenues of $960 million to $970 million, up from the previous guidance of $925 million to $940 million. Earnings per share (excluding stock based compensation and one-time charges) are projected around $1.12 – $1.15, up from the previous guidance of $1.00 – $1.10.
We have discussed the results in detail here: VeriFone Beats, Ups Guidance
Earnings Estimate Revisions – Overview
Analysts covering the stock have been overall in agreement in raising their earnings estimates following the earnings release. This was primarily due to the upbeat outlook provided by management, which indicates a strong and broad-based recovery in the business.
Agreement of Analysts
There is a clear consensus among analysts covering the stock. All four analysts covering the stock have upped their estimates for fiscal 2010 in the last seven days. This high level of agreement among analysts primarily reflects continued broad-based improvement in the business, which should drive growth in the coming quarters.
For 2011 as well, all four analysts covering the stock have increased their estimates in the last seven and thirty days. Overall, the sentiment is positive for next year as well.
Magnitude of Estimate Revisions
Not only is the direction of estimate revisions positive and favorable, but the magnitude of these revisions is also significant and impressive. The current Zacks Consensus Estimate (ZCE) for 2010 is $1.00, up seven cents in the last seven days following management’s upgrade.
The momentum is expected to pick up as the year progresses. For 2011, the current ZCE is $1.21, up eight cents in the last seven days. For the next quarter, the current ZCE is 26 cents, up three cents in the last seven days.
Outperform on PAY
VeriFone is a global leader in providing countertop, wireless, consumer-activated, petroleum and server-based payment solutions worldwide. VeriFone experienced lower-than-expected revenue levels in 2009 and a softer demand globally due to weak markets and adverse economic conditions.
However, with the economy showing signs of recovery, revenue growth should pick up in 2010. The core business — petroleum — continues to show strength driving growth as businesses continue to recover in North America.
Margins have also showed improvement in the last two quarters. Based on a brighter outlook for 2010, we recently upgraded our recommendation on VeriFone to Outperform from Neutral. Our Outperform rating is supported by the Zacks #2 Rank.
Read the full analyst report on “PAY”
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