VeriFone Systems, Inc. (PAY) continues to trade within $2 of its multi-year high on a solid 9% earnings surprise from late May. With an average earnings surprise of 27% over the last four quarters and rising estimates, this Zacks #1 rank stocks has some solid upward momentum.
Company Description
VeriFone Systems, Inc. designs and sells electronic point-of-sales systems that enable merchants and customers to conduct electronic transactions worldwide. The company was founded in 1981 and has a marker cap of $1.78 billion.
Electronic payment solutions have exploded over the last ten years as more advanced infrastructure and software capabilities make it easier for consumers to use a debt or credit cards at merchant locations across the world. VeriFone has been on the leading edge of that trend, helping the company achieve amazing sales growth since going public in 2005. That dynamic was on display on May 25 with better than expected Q2 results.
Second-Quarter Results
Revenue for the period was up 6% from last year to $241 million, a record for Q2. Earnings also came in strong at 24 cents, 9% ahead of the Zacks Consensus Estimate. The company has been solid over the last year with an average earnings surprise of 27%.
VeriFone made it clear on the call that it continues to be interested in expanding its already strong international reach, announcing it had acquired the assets of Orange Logic, a South Korean payment systems provider. Although the terms of the deal have not been released, VeriFone noted that South Korea has the second most POS systems in the world after America, which provides a compelling growth opportunity because only 10%-15% of those machines are currently government compliant, and could require upgrades.
Looking forward, that same dynamic exists in the United States, where new financial regulation initiatives related to security and fraud detection at POS machines could provide an opportunity to the company if security upgrades become mandate.
Strong Balance Sheet
Another thing to like about VeriFone is its strong balance sheet, with its cash and equivalents up $179 million from last year to $379 million. It has been paying down debt, with total debt down $41 million to $472 million.
Estimates
We saw estimate move higher on the solid quarter, with the current year up 7 cents to $1.00. The next-year estimate added 8 cents to $1.21, a 21% growth projection.
The valuation picture is looking pretty solid, with PAY’s forward P/E of 20X representing a slight premium to the industry average of 19X.
2-Year Chart
Shares of PAY have been a bit range bound after hitting a new multi-year high in late March at $23.75. Look for support from the trend line and the short-term low on any weakness, take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service. Zacks Investment Research
