Can VeriFone (PAY) Benefit from Rising Demand for EMV? - Analyst Blog

We have issued an updated research report on VeriFone Systems, Inc. PAY on Apr 14, 2015. This electronic payment solutions provider reported strong first-quarter 2015 results on Mar 10 with both the top line and the bottom line beating expectations. However, the company lowered its revenue guidance for 2015 owing to expected foreign currency headwinds and ongoing sluggishness in Russia.

Factors to Consider

VeriFone has a prime position in the electronic payment systems and services market. The company has around 27 million system terminals globally and it provides more than 50% of the world’s EMV capable terminals. We believe that the company has strong growth potential from the rollout of EMV enabled cards in the U.S. VeriFone estimates an increase of 30% in the EMV terminals market after the EMV chip card fraud liability shift of Oct 2015, which will make it mandatory for merchants to install EMV-capable terminals. Rising demand for terminal solutions will likely bode well for the company, especially with the entry of tech giants like Apple Inc. AAPL and Samsung in the mobile payments industry.

VeriFone is also benefiting from its strategic partnerships and acquisitions. Recently, the company partnered with First Data Corp. and acquired GoPago, which are likely to drive growth over the long run. We believe that apart from strong alliances, a robust product pipeline, growing payments-as-a-service business offerings and new digital marketing solutions will act as key growth catalysts in 2015. Initiatives to better align operations and reduce costs are the other positives.

However, intensifying competition and investments in new product development will keep margins under pressure in the near term. Moreover, new non-card payment methods (over the Internet and cloud instead of using physical cards) are also expected to gain significant traction over the long run. We expect the company to face significant competition not only from new market entrants but also from these new technologies, going forward.

Further, VeriFone’s high debt and limited liquidity could limit its research and development activities, going forward. As of Jan 31, 2015, the company had a net debt position of $590.6 million with a debt-capital ratio of 47.3%. Cash flow from operations was $41.1 million in the first quarter.

Zacks Rank

VeriFone has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Ingenico S.A. INGIY and JetPay Corporation JTPY. Both stocks have a Zacks Rank #2 (Buy).

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