A Stock Near its 52-week Low You Might Consider Buying
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Electronic payment solutions company VeriFone Systems’ (NYSE: PAY) third quarter results were a mixed bag, as it fell short of revenue estimates. In addition, weak revenue expectations for the current quarter and the current year further weighed on investor sentiment, sending the stock within a whisker of its 52-week low.
But, being a torch bearer of the fast-evolving payment solutions industry, I believe VeriFone presents an enticing opportunity at its beaten down levels. After all, the problems due to which the company’s top line is not performing up to the mark can certainly be fixed. Let’s check the reasons behind VeriFone’s setback and see why it might turn out to be a good buy after its recent decline.
Good, but Not Good Enough
VeriFone’s top line has grown at a fast clip over the past few years, jumping from around $850 million in FY09 to $1.3 billion in FY11. In its recently reported quarter, VeriFone’s revenue jumped a massive 56% from last year to $493 million, but still came in short of the $498.4 million Street consensus.
But if VeriFone’s staging and repair center in Brazil wouldn’t have caught on fire, forcing its customers to look at alternatives, I believe the company would have managed to cross the Street’s benchmark. The fire resulted in decreased revenue from services, hampering its sales efforts and the effect is expected to flow into the current quarter.
As a result, VeriFone’s current quarter revenue forecast of $495 million to $500 million is a long way off from the Street consensus of $520 million. But the company is making efforts to fix the problem in Brazil and activated a new facility. It expects this facility to bring its business back to normal levels after the current quarter is over.
The Bright Lights
Apart from the above mentioned sticking point, everything else was just great about VeriFone in the quarter. The company is witnessing rapid growth in regions across the world. Its business in Europe, the Middle East and Africa (EMEA) shot up 109% from last year while Asian revenue jumped a terrific 72%. In North America, the company’s revenue increased 14% year over year as adoption of EMV (Europay, MasterCard and Visa)-enabled systems gathered momentum.
Going forward, VeriFone has some solid catalysts to drive its business. It is the leading provider of point-of-sale terminals and its new terminals come equipped with NFC capability, which is the way we are going to make payments in the future. VeriFone’s list of clients is also quite strong. PayPal, eBay’s (NASDAQ: EBAY) subsidiary, has partnered with VeriFone to drive its in-store payments. PayPal will be able to introduce its in-store payment system with ease through VeriFone’s POS terminals without having to install new terminals.
In addition, VeriFone is making strides in China and has recorded a number of customer wins. Also, it has brought several banks in Asia on its client rolls and expects the momentum to continue going forward. It has also won contracts in the transportation sector and secured another New York Metropolitan Transportation Authority contract in the Bronx, following up on its Slaten Island win last year.
Its London black cabs program is chugging along nicely and the company has inked more than 10,700 multi-year contracts. Also, VeriFone won a contract for installing its systems in 6,500 cabs in Washington, D.C.
Clearing the Air
VeriFone’s management also took time out on the conference call to explain that Starbucks’ (NASDAQ: SBUX) partnership with Square for mobile payments is not going to hurt its business. Last month, Square teamed up with Starbucks for processing debit and credit card transactions and the news sent VeriFone’s stock crashing. Management clarified that Starbucks is not a VeriFone customer in the U.S. and cleared the air that this won’t hamper VeriFone’s business.
Don’t Ignore These
Moreover, VeriFone is a much, much bigger player than a start-up such as Square and its business is spread across continents. All those wallet solutions that we see nowadays, be it by Google, PayPal or Isis, use VeriFone’s terminals. This indicates that VeriFone’s widespread payments infrastructure is an advantage which can’t be wiped out pretty soon. Also, VeriFone is working with both McDonald's and Dunkin' Brands’ Dunkin Donuts for devising their mobile payments system.
VeriFone’s top line has been on a terrific run over the past few years and its bottom line performance has also been solid. However, the stock has been battered quite badly and a 14% drop seems quite harsh. It has been bad luck for VeriFone as it was hammered in August on the basis of news that ignored its potential.
It is a leader in the evolving payments industry, it has seen rapid growth across countries and should get better in the future as new technology takes center stage and VeriFone rides that revolution. As such, VeriFone looks like a stock that you might consider buying, especially considering that it is trading close to its 52-week low.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of VeriFone Holdings and Starbucks and is short Starbucks. Motley Fool newsletter services recommend eBay and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.