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Is a Surprise in Store for VeriFone (PAY) in Q3 Earnings?

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VeriFone Systems, Inc. (PAY - Free Report) is set to report results for fiscal third-quarter 2017 results on Sep 7.

Last quarter, the company’s earnings of 30 cents per share came in line with estimates. In the trailing four quarters, the company surpassed the Zacks Consensus Estimate twice while matching the same on the other two occasions, delivering an average positive surprise of 2.11%.

Non GAAP revenues declined 11% year over year to $473.9 million and was slightly better than the consensus mark. However, the figure was in line with the high end of the guided range of $470–$474 million driven by double-digit sequential growth in North America retail and SMB business verticals along with strong demand for devices in India.

Given the mediocre second-quarter results and divestiture of its three non-core businesses, the company lowered its fiscal 2017 guidance.

Notably, VeriFone shares have gained 10.4%, significantly underperforming the 25.5% rally of the industry it belongs to.

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

Factors to Consider

VeriFone has a strong foothold in the electronic payment systems and services market and is likely to benefit from the ever-expanding demand for Point-of-Sale (POS) software and Payment-as-a Service technologies. The restructuring program initiated by VeriFone positions it well for the booming payments market.

Moreover, VeriFone’s focus on strengthening its product portfolio that now includes the likes of Carbon 8 and Engage, and expansion of business primarily through accretive acquisitions will likely be a key growth driver going ahead.

Further, the PCI certification received by VeriFone’s new Engage platform has attracted clients based in Germany, France, India, Japan and South Africa. Additionally, the company’s new mid-range mPOS solution based on the Carbon platform is anticipated to improve competitive position in SMB and emerging markets business.

Management also expects divestitures to have a positive impact on margins going forward.

However, increasing competition and continued macroeconomic volatility remain headwinds.

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 36 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

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

Stocks to Consider

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat in their upcoming release:

InterDigital (IDCC - Free Report) with an Earnings ESP of +10.45% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International (CACI - Free Report) with an Earnings ESP of +1.09% and a Zacks Rank #2.

Seagate Technology (STX - Free Report) with an Earnings ESP of +1.65% and a Zacks Rank #3.

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