Earnings Scorecard: VeriFone

Estimates have been on the rise in the last seven days after VeriFone Systems Inc. (PAY) reported strong results for the first quarter of fiscal 2011 and upgraded guidance for fiscal 2011.

VeriFone 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.

This has led to positive and significant estimate revisions by the analysts covering the stock driving a surge in earnings estimates and signifying a strong positive sentiment.

First Quarter Earnings Flashback

VeriFone reported revenues of $284 million in the first quarter of fiscal 2011, up 27% year over year and up 3.0% sequentially, beating the Zacks Consensus Estimate of $268 million.

Latin America and Europe were the growth engines recording year over year growth rates of 23% and 14%, respectively. Asia recorded a 12% year-over-year growth.

Net income came in at $32.0 million or 35 cents per share in the quarter compared to a net income of $10.6 million or 12 cents per share in the year-ago quarter and a net income of $49.4 million or 55 cents in the prior quarter.

Excluding one-time charges but including stock-based compensation expense, net income was 35 cents per share, easily beating the Zacks Consensus Estimate of 33 cents.

Estimate Revisions – Overview

Following the upgrade in guidance by VeriFone last week, all the analysts covering the stock have increased their estimates for fiscal 2011 in the last seven days depicting a strong positive sentiment.

Agreement – Estimate Revisions

For fiscal 2011, all of the five analysts covering VeriFone have raised their estimates in the last seven days.

For the fiscal second quarter as well, all of the five analysts covering the stock have raised their estimates in the last seven days with no movement in the opposite direction.

Analysts were bullish for fiscal 2012 as well. For fiscal 2012, all the five analysts covering the stock have raised their estimates in the last seven days.

Magnitude of Estimate Revisions

Not only is there strong consensus among the analysts covering the stock, the magnitude of revisions is significant as well.

The current Zacks Consensus estimate for 2011 is $1.55, up by 8 cents in the last seven days. For 2011, the estimates range from $1.53 to $1.60.

In addition to the acquisition of Hypercom, VeriFone continues to post strong gross margins in the services business and drive improvement in system solutions due to cost savings and product mix, resulting in bottom-line improvement.

The current Zacks Consensus estimate for the fiscal second quarter is 37 cents, up by three cents in the last seven days. The estimates in the current Zacks Consensus for fiscal second quarter range from a low of 35 cents to a high of 38 cents.

For fiscal 2012, the current Zacks Consensus estimate for 2012 is $1.92, up by 20 cents in the last seven days.

Our Take

VeriFone’s core business – petroleum – continues to be strong and is driving growth as businesses recover in North America. Business has revived robustly for the company, especially the point of sale (POS), petroleum and taxi businesses. New product initiatives such as VeriShield and PayWare Mobile continue to gain traction.

VeriFone recently acquired Hypercom Corporation (HYC) for approximately $7.32 per share or $485 million in an effort to accelerate expansion in key international markets such as Europe.

Hypercom has established itself in a number of important European markets. Hence VeriFone expects that the acquisition of Hypercom will enable the company to expand its footprint in Continental Europe, where its market penetration has been lower, compared to the rest of the world.

VeriFone had earlier stated that the acquisition will throw up significant operating synergies that will emanate from eliminating product overlap, administrative costs and sales expenses in many markets. The combination of the two businesses will lead to better product development along with significant supply efficiencies for the combined business.

We believe the company is well placed, driven by solid demand for newer services, and we see a lot of potential for growth in the coming quarters. Hence, we maintain our Outperform recommendation on the stock supported by a Zacks #2 Rank, which translates into a short-term rating of Buy.

VERIFONE HLDGS (PAY): Free Stock Analysis Report

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