Shares of VeriFone Systems, Inc. (NYSE:PAY) tumbled to a 52-week low of $14.93 during the trading session on Apr 2. However, the figure recovered marginally to close at $15.14, down 1.5%.
In fact, the stock has not performed well in the past three months. Shares of Verifone have lost 14.1% against the industry’s gain of 3.0% in the said timeframe.
Reasons for the Underperformance
Macro Headwinds and Competition
VeriFone’s business continues to be affected by macroeconomic headwinds in emerging markets such as China and India. Further, VeriFone faces significant competition from a number of local providers in the domestic as well as international markets. Notably, non-GAAP revenues from North America and Asia Pacific declined drastically by 21.7% and 30.7%, respectively, in first-quarter fiscal 2018, on a year-over-year basis.
Meanwhile, Verifone reported mixed financial results for first-quarter fiscal 2018. Earnings per share met the Zacks Consensus Estimate and improved fr om the year-ago quarter. Non-GAAP revenues, despite beating estimates, declined 4.3% year over year. The company’s System Solutions revenues declined 7% year over year to $243.1 million, owing to the headwinds arising from the U.S. petro business and Indian markets.
Verifone Systems, Inc. Revenue (TTM)
Verifone Systems, Inc. Revenue (TTM) | Verifone Systems, Inc. Quote
Apart from this, the Electronic payment system and services market is highly competitive and fragmented. New market entrants such as non-card payment methods (using Internet and cloud instead of using physical cards) are expected to gain significant traction in the long run. Increased pricing pressure is another headwind. We believe the market is getting more competitive with the introduction of new market entrants and latest technologies.
Divestures and Buyout-related Woes
The divestitures of China business, Petroleum Media business and Taxi Solutions business during 2017 are anticipated to hurt top-line growth in the near term. Multiple acquisitions, despite improving revenue opportunities, increase the company’s exposure to integration risks. Further, the company’s leveraged balance sheet may limit future expansion and worsen its risk profile. Higher interest rate on debt is expected to negatively impact profitability.
Recent launches like Carbon Mobile 5 device and Verifone e280 mobile point-of-sale (mPOS) solutionwill take some time to contribute to growth.
Downward Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. Over the last 60 days, the Zacks Consensus Estimate for current quarter earnings declined 12.1% to 29 cents per share. Full-year 2018 earnings estimates however remained unchanged at $1.48 per share in the last 60 days.
Further, current quarter and full-year 2018 sales are estimated to decline 8.1% and 4.2%, respectively.
The downward estimate revisions reflect pessimism over the prospects of this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Bearish Readings
ROC and ROE
Return on Capital (ROC) of Verifone is 7.1% compared with 19.9% for the industry. This implies that the company generates a lower return on investment than its industry.
Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. Verifone’s trailing 12-month ROE undercuts its growth potential. The stock’s current ROE stands at 18.9% compared with the industry’s ROE of 37.2%.
Debt-to-Equity Ratio
The debt-to-equity ratio is a good indicator of the financial well-being of a company. To this end, Verifone seems to be a highly leveraged stock with a reading of 93.5% compared with 61.7% for the industry.
Other Stocks to Consider
Some other top-ranked stocks in the broader Business Services sector include Fiserv (NASDAQ:FISV) , Global Payments (NYSE:GPN) and Mastercard (NYSE:MA) . All the stocks currently carry a Zacks Rank #2.
The projected earnings growth rate (3-5 years) for Fiserv, Global Payments and Mastercard is 11.5%, 15.8% and 18.3%, respectively.
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Verifone Systems, Inc. (PAY): Free Stock Analysis Report
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