VeriFone Systems (PAY) Q3 Earnings: What Lies In Store?

VeriFone Systems, Inc. (NYSE:PAY) is set to report results for the third quarter of fiscal 2016 on Sep 1.

Last quarter, the company posted a negative earnings surprise of 15.56%. Moreover, it has delivered negative surprises in two of the trailing four quarters, translating to an average negative surprise of 0.09%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Since the last quarter, the company has been facing a number of challenges owing to intensive pricing pressure in Asian and Latin American markets along with unfavorable revenue mix in North America. A sluggish media business and unexpected delays in U.S. EMV enabled PoS installations are the other headwinds.

As a result of these challenges, the company initiated a new restructuring program to focus on streamlining its operations and carve a growth trajectory for the long run. But all this resulted in a considerable cut in its earnings and revenue guidance for fiscal 2016. We expect its financials in the to-be-quarter to a take substantial hit owing to these headwinds.

Nonetheless, VeriFone does hold a prime position in the electronic payment systems and services market. The company is benefiting from the increasing adoption of new payment solutions from Apple (NASDAQ:AAPL) , Alphabet (NASDAQ:GOOGL) and Samsung (KS:005930) in the mobile payments industry.

In Jun 2016, the company clinched two new partnerships- Aldi France (for providing with nearly 3,200 payment devices) and Wirecard AG (for a five-year strategic alliance).

VeriFone projects non-GAAP revenues of approximately $515 million and non-GAAP earnings per share of approximately 40 cents for the third quarter.

Earnings Whispers

Our proven model does not conclusively show that VeriFone will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: VeriFone has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 31 cents.

Zacks Rank: VeriFone’s Zacks Rank #3 increases the predictive power of the ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Investors can consider the following stock, which, according to our model, has the right combination of elements to beat earnings in its upcoming release:

Alcobra Ltd. (NASDAQ:ADHD) has an Earnings ESP of +18.18% and a Zacks Rank #3.