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Bear of the Day

VeriFone Systems (PAY - Analyst Report) is a provider of technology for electronic payment transactions and value-added services at the point of sale. Its customers are primarily global financial institutions, payment processors, petroleum companies, large retailers, government organizations and healthcare companies, as well as independent sales organizations. 
 
Disappointing Results and Management Guidance
 
PAY reported the financial results for Q4 of the fiscal year ended October 31, 2013 on December 17, 2013. Net income for the quarter came in at $0.27 per share, compared to $0.76 per share a year ago. After including stock based compensation, the earnings were $0.13 per share, substantially short of the Zacks Consensus Estimate of $0.18 per share.

Gross margin contracted 310 basis points from the previous-year quarter and operating profit declined 70.4% mainly due to 11.5% year-over-year decline in revenues and 28.1% increase in operating expenses.
 
The management expects non-GAAP revenues to be in the range of $425.0 million–$430.0 million for the first quarter of fiscal 2014, almost unchanged from $429.0 million reported in the year-ago quarter.

Management expects first-quarter non-GAAP earnings to be $0.26 cents per share, down from $0.40 per share in the year-ago quarter.
 
Downwards Revisions
 
Due to disappointing results and uninspiring guidance, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.
 
Zacks Consensus Estimates for the current quarter and the fiscal year now stand at $0.18 per share and $1.01 per share, down from $0.25 per share and $1.27 per share, 30 days ago.
 
Declining estimates sent PAY to a Zacks Rank # 5 (Strong Sell) on December 21, 2013.
 
Better Play?
 
Investors looking for plays on the Financial Transactions industry could consider Qiwi plc (QIWI), which has a Zacks rank of 1 (Strong Buy) and an "Outperform" recommendation.
 
Bottom Line
 
PAY’s top-line growth has continued to decline in 2013 and is expected to remain under pressure over the next 12 months.  According to Zacks Equity Research “this is primarily due to the problems related to the distribution channel in the Middle-East and sub-Sahara region, delay in completing certification of products in important markets such as Brazil, lack of new products in the near term, and increasing competition.”
 
Some of the recent steps taken by the company to streamline the business and appointment of a new CEO may bear fruit in the longer term but the near-term concerns may keep the stock under pressure for the time being.
 
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