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VeriFone Systems (PAY) Q2 Earnings: What's in the Cards?

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VeriFone Systems, Inc. (PAY - Free Report) is set to report results for the second quarter of fiscal 2016 on Jun 7, after the market closes. Last quarter, the company posted a positive earnings surprise of 5.26%. Moreover, it has delivered positive surprises in three of the trailing four quarters, translating to an average positive surprise of 6.83%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

VeriFone has a dominant position in the electronic payment systems and services market with over 29 million system terminals globally. Moreover, as the global mPOS market is expected to double from 2014 to 13 million units by 2016, it spells big opportunity for VeriFone. Increasing adaptability of new payment solutions from Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) and Samsung in the mobile payments industry is also a positive for VeriFone.

Additionally, the company is focused on increasing its operational efficiency by taking a number of cost-cutting and streamlining measures. Moreover, accretive acquisitions have played an important role in VeriFone’s business expansion. In the past few months, the company acquired Curb and InterCard AG, a German PaaS provider. While the company boosted its presence in the “taxi network of card acceptance” with Curb, it expanded its service offerings by leveraging InterCard’s retail clientele across Europe.

Nonetheless, VeriFone faces significant competition from a number of local providers in the domestic, international as well as emerging markets such as China and India. At the same time, we believe the company’s highly leveraged balance sheet can limit its developmental activities.

VeriFone projects non-GAAP revenues of approximately $530 million and non-GAAP earnings per share at 51–52 cents for the second quarter.

Earnings Whispers

Our proven model does not conclusively show that VeriFone will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: VeriFone has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 44 cents.

Zacks Rank: VeriFone’s Zacks Rank #3 increases the predictive power of the ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Investors can consider the following stock, which, according to our model, has the right combination of elements to beat earnings in its upcoming release:

Southern Copper Corp. (SCCO - Free Report) , Inc. has an Earnings ESP of +33.33% and a Zacks Rank #2.

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