VeriFone Systems (PAY, Financial) released good results for the third quarter. The company soared high with a solid improvement in revenue and profit. The main reason behind this robust performance is the higher demand for devices that can accept credit cards. However, the company is still suffering losses attributable to the company’s shareholders.
VeriFone is expecting to improve in the future and has posted an upbeat outlook for the next quarter. It is also making moves to improve the infrastructure and be profitable in the next quarter.Ă‚
Improving results
VeriFone posted quarterly revenue of $476 million which is a solid 14% increase as compared to the same quarter last year. The company also posted net income diluted per share of $0.40 which is a 67% increase. The company posted $0.24 per share in the same quarter last year. However, the company also posted a loss of $29 million in the third quarter.
VeriFone is improving at a good pace. It is seeing higher demands for devices that can accept credit cards embedded with chips. VeriFone is boosting its business on the back of strong demands for chip card devices.
Making progress
Moving forward, VeriFone is making meaningful progress in its cost optimization initiative. It is further making efforts to support this initiative and till now it has reduced the headcount to nearly 375. This move has also helped it to improve its savings which it is redeploying to strengthen its foundation to drive future growth. It is also making strides to improve its operational efficiency by undertaking cost optimization initiatives. It is making advances to focus much on the productive facilities. It has recently closed 14 under-performing facilities as well as 13 legal entities. In addition, it has also divested certain non-core assets which doesn’t fit in the growth strategy.
VeriFone is seeing further improvement in the sales as it leads the U.S migration towards EMV acceptance. It is further focusing on growing its terminal solution business in its key strategic markets. It is focusing on China as it is one of the markets with the most potential. Even in the past, VeriFone had introduced lower cost products to bolster its competitive position in the market.
In Germany, VeriFone has recently signed a deal with ROSSMANN which is a second largest drug store chain in Germany. With this, ROSMANN will deliver thousands of VeriFone’s H5000 terminals designed specifically for the German market. This will help the company to capture market in Germany and is expecting it to contribute well to VeriFone’s top line in the coming quarters.
VeriFone is also focusing on its payment-as-a-service business. It is leveraging its payment gateways to connect merchant terminals with an objective of efficiently routing transactions. It is also making efforts to simplify monitored device operations, enhancing payment security and compliance. It is also taking a strategic step of advancing payment-as-a-service in several markets. As the world is seeing increasing complexity and risk in payment, VeriFone is seeing bright spots on the dark paper.
With this growing complexity, merchants are looking to outsource most of their operations to VeriFone. With this need, the company is seeing continued migration for payment-as-a-service in the Nordics, Australia and New Zealand.
Moving ahead, VeriFone is expecting the petroleum segment to be a key growth driver for it in future. It is expecting that the petroleum and the taxi wins will start reaping benefits by 2015.
Conclusion
The company doesn’t have a trailing P/E as it is still making losses but the forward P/E of 18.53 shows that the stock is seeing good growth in its earnings in future. But the earnings growth seems short lived; in the next five years, its earnings are growing by just 8.8% which is way behind the industry average of 16.08%. Also, the stock is weak due to disappointing return on equity and poor operating cash flows. So, keeping all these points in mind, I would like to suggest investors stay on the side lines until it shows some concrete signs of gaining market share.
