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Will VeriFone (PAY) Continue to Gain from Shift to EMV?

We issued an updated research report on VeriFone Systems, Inc. PAY on Apr 6, 2016.

This electronic payment systems and services leader has been benefiting from the ongoing demand shift toward EMV and NFC-enabled terminals. This allowed the company to not only beat expectations in the first quarter of fiscal 2016 but also raise both top and bottom line guidance for fiscal 2016.

Recently, it unveiled a novel integrated point-of-sale (POS) solution called VeriFone Carbon. It is designed to be more connected and efficient to enable smooth payments for café owners, quick service restaurants and retail stores.

Furthermore, increasing adaptability of new payment solutions from Apple AAPL, Alphabet GOOGL and Samsung SSNLF in the mobile payment industry is a major positive for VeriFone.

Besides organic growth, a key aspect of VeriFone’s business expansion is strategic acquisitions. Over the last couple of quarters, the company has acquired companies like Curb and InterCard AG and has announced plans to buy another company- AJB Software Design. Accretive acquisitions have helped the company to expand its international footprint.

We are also optimistic about the company’s focus on realigning its operations by cutting down on overlapping solutions, establishing centers of excellence to better leverage global footprint and streamlining R&D organization. These initiatives will not only make operations simple but also lower its cost structure.

As a result of upward estimate revisions, over the last 30 days, the Zacks Consensus Estimate for 2016 has increased by 3.3% to $1.88 per share.

However, stiff competition and extensive investments will keep margins under pressure in the near term. Also, the company’s highly leveraged balance sheet can limit its developmental activities.

Currently, VeriFone carries a Zacks Rank #2 (Buy).

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