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On Jun 11, 2013, Zacks Investment Research downgraded VeriFone Systems Inc. (PAY - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

VeriFone reported a disappointing second quarter of 2013. Earnings of 36 cents not only missed the Zacks Consensus Estimate by 3 cents but also decreased 36.0% from the year-ago quarter and 10.3% from the previous quarter.

Revenues (excluding amortization of step-down in deferred revenues at acquisition) decreased 10.4% from the year-ago quarter but remained flat sequentially at $429.7 million. Revenues fell short of management’s guided range of $435.0 million to $450.0 million.

Operating margin declined 590 bps year over year and 230 bps sequentially to 13.1% in the last quarter. The significant decline was primarily due to higher operating expenses (up 350 basis-points from the year-ago quarter and 100 basis-points sequentially) and lower gross margin base (contracted 240 basis-points from the year-ago quarter and 130 basis-points from the previous quarter).

VeriFone expects revenues to decline sequentially to approximately $400.0 million for the third quarter of 2013. Management expects third quarter earnings to be approximately 20 cents. Fourth quarter revenues and earnings are expected to improve sequentially due to improved product pipeline.

The Zacks Consensus Estimate for the third quarter of 2013 has declined 73.8% (31 cents) to 11 cents over the last 30 days.

The Zacks Consensus Estimate for 2013 decreased 38.0% (63 cents) to $1.03 per share over the last 30 days. The Zacks Consensus Estimate for 2014 dropped 49.2% (91 cents) to 94 cents per share over the same period.

Other Stocks to Consider

Not all electronic payment technology providers are performing as poorly as VeriFone. We recommend Advent Software (ADVS - Snapshot Report), which has a Zacks Rank #1 (Strong Buy). NCR Corp (NCR - Analyst Report) and EPIQ System (EPIQ - Snapshot Report), both having a Zacks Rank #2 (Buy), are also looking good at present.

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