We recently reiterated our Outperform recommendation on VeriFone Holdings Inc. (PAY).

Earnings estimates for fiscal 2011 moved higher after the company reported strong results for the first quarter and upgraded its guidance for fiscal 2011.

For fiscal 2011, VeriFone projects revenues between $1.150 billion and $1.160 billion, up from the previous estimate of $1.130 billion and $1.150 billion. Earnings per share (excluding stock based compensation and one-time charges) are projected around $1.75 – $1.80, up from the previous estimate of $1.60 – $1.70.

The core terminals business is performing well and emerging markets continue to drive further growth. VeriFone’s presence in the petroleum markets continues to be strong and is driving growth as businesses recover in North America.

Business has revived robustly for the company after the slowdown in fiscal 2009, especially the point of sale (POS), petroleum and taxi businesses. New product initiatives such as VeriShield and PayWare Mobile continue to gain traction. The taxi business also continues to expand rapidly in the U.S. and London.

Earlier, in November 2010, VeriFone announced that it would acquire rival Hypercom Corporation, which had established itself in a number of important European markets. Therefore, VeriFone expects the acquisition of Hypercom to enable the expansion of its footprint in Continental Europe, where its market penetration has been lower compared with the rest of the world.

VeriFone recently announced that it will sell the U.S. payment systems business of Hypercom to Ingenico S.A, for approximately $54 million. The payment business generated revenues of $61 million in 2010. Following the completion of the merger, VeriFone will retain Hypercom’s non-payment terminal Networking product operations in the U.S.

The payment business sale is part of the contemplated divestiture plan previously announced by VeriFone in connection with its proposed acquisition of Hypercom.

With the economy recovering, revenue growth at Verifone Holdings should accelerate in fiscal 2011. We believe the company is well placed, driven by solid demand of newer services. We see a lot of potential for growth in the coming quarters. Therefore, we are maintaining our Outperform recommendation on the stock.

Our recommendation is supported by a Zacks #1 Rank, which translates into a short-term rating of Strong Buy.

 
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