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VeriFone (PAY) Hits 52-Week Low on Cut in Fiscal 2016 View
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Shares of VeriFone Systems Inc. (PAY - Free Report) tumbled nearly 25% and touched a 52-week low of $19.71 before closing at $21.27 in yesterday’s trading session.
Investors are indeed unhappy with the weaker-than-expected second-quarter fiscal 2016 earnings. But what actually led to this sell-off was the unexpected cut in its earnings and revenue guidance for fiscal 2016 and that too a significant one.
Despite growth in revenues, VeriFone’s adjusted earnings of 38 cents per share fell well short of our expectation of 45 cents. Lower-than-expected margins were the prime reason for such dismal results. The company revealed that it has been witnessing intensive pricing pressure in Asian and Latin American markets along with unfavorable revenue mix in North America, which weighed on its results. Moreover, the results were also affected by a sluggish media business. Unexpected delays in the U.S. EMV enabled PoS installations further acted as a speed-breaker for the company.
In such a scenario, the company deemed it best to initiate a new restructuring program to focus on streamlining its operations and carve a growth trajectory for the long run. CEO Paul Galant stated "Q2 was a mixed quarter for Verifone as we grew our business, but experienced several difficult market dynamics. As a result, it is necessary for us to adjust for these risks and update our outlook for FY16 to $2.100 billion dollars of revenue and $1.85 of earnings per share. We are aggressively executing mitigating actions including a headcount restructuring and a review of underperforming businesses."
While the restructuring program is a positive, the changes will take time to be implemented.
However, the road ahead may not be as difficult as it appears to be now as much of the negative sentiment has already been priced in. We note that despite the near-term headwinds, VeriFone does hold a prime position in the electronic payment systems and services market (which is expected to grow exponentially in the long run).
Currently, VeriFone has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader tech sector include Internap Corporation , Atlassian Corporation Plc (TEAM - Free Report) and Castlight Health, Inc. (CSLT - Free Report) , each carrying a Zacks Rank #2 (Buy).
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VeriFone (PAY) Hits 52-Week Low on Cut in Fiscal 2016 View
Shares of VeriFone Systems Inc. (PAY - Free Report) tumbled nearly 25% and touched a 52-week low of $19.71 before closing at $21.27 in yesterday’s trading session.
Investors are indeed unhappy with the weaker-than-expected second-quarter fiscal 2016 earnings. But what actually led to this sell-off was the unexpected cut in its earnings and revenue guidance for fiscal 2016 and that too a significant one.
Despite growth in revenues, VeriFone’s adjusted earnings of 38 cents per share fell well short of our expectation of 45 cents. Lower-than-expected margins were the prime reason for such dismal results. The company revealed that it has been witnessing intensive pricing pressure in Asian and Latin American markets along with unfavorable revenue mix in North America, which weighed on its results. Moreover, the results were also affected by a sluggish media business. Unexpected delays in the U.S. EMV enabled PoS installations further acted as a speed-breaker for the company.
In such a scenario, the company deemed it best to initiate a new restructuring program to focus on streamlining its operations and carve a growth trajectory for the long run. CEO Paul Galant stated "Q2 was a mixed quarter for Verifone as we grew our business, but experienced several difficult market dynamics. As a result, it is necessary for us to adjust for these risks and update our outlook for FY16 to $2.100 billion dollars of revenue and $1.85 of earnings per share. We are aggressively executing mitigating actions including a headcount restructuring and a review of underperforming businesses."
While the restructuring program is a positive, the changes will take time to be implemented.
However, the road ahead may not be as difficult as it appears to be now as much of the negative sentiment has already been priced in. We note that despite the near-term headwinds, VeriFone does hold a prime position in the electronic payment systems and services market (which is expected to grow exponentially in the long run).
Currently, VeriFone has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader tech sector include Internap Corporation , Atlassian Corporation Plc (TEAM - Free Report) and Castlight Health, Inc. (CSLT - Free Report) , each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>