Which brings us to the present: VeriFone’s stock has plunged in the last year by nearly 34%, over 21% of which occurred in 2013. At the end of May, it closed at $23.33, close to its 52-week low of $17.93. Investors became alarmed when in February, the company pre-announced that they would miss their net income targets. This was coupled with the departure of CEO Doug Bergeron. However, in looking at the company’s recently reported first quarter earnings, VeriFone’s Non-GAAP net revenues were $430 million, and gross margin as a percentage of net revenues was 43.6%, 7 basis points higher than the same quarter a year go. In addition, over the last 5 years VeriFone has grown its top line by 16.5%. It’s true that the market has punished VeriFone for a disappointing first quarter, but perhaps too much so.
So how does VeriFone compare with its primary pure play rivals, Ingenico and NCR? To begin with, Ingenico recently reported strong Q1 2013 results, boasting revenue growth of 21% year over year to 291 million Euros (possibly the result of macroeconomics rebounding in Europe). In addition, an EMV (Europay/Mastercard/Visa) upgrade cycle is slated to begin in 2014, from which both companies should benefit – this global standard defines the way in which financial transactions are processed, all the consumer to the issuing bank. Both Ingenico and VeriFone should benefit from this upgrade cycle, as merchants will be forced to upgrade their outdated point-of-sale terminals to comply with this standard, which may add incremental revenue opportunities in 2014. However, for 2014, VeriFone Systems Inc (NYSE:PAY) will be focused on improving it’s operational performance internally for the next few quarters to years, during which time InGenico and NCR Corporation (NYSE:NCR) could steal market share. Currently, the market is assigning NCR Corporation (NYSE:NCR) with the highest P/E multiple of 38.3x, and it also boasts the highest return on equity at 14%, more than double VeriFone’s 5.2%.
Historically, VeriFone has always bounced back impressively from rockier periods, and 2013-2014 should be no exception. In addition, a private equity takeover is not out of the question, and even speculation of such an event could potentially drive the stock north. In terms of cash flow, VeriFone has stated in their most recent first quarter earnings report that they expect free cash flow will be in in the range of $170-$190 million, up from fiscal year 2012’s $155 million.
The article Moving Money is One of the Best Ways to Make it originally appeared on Fool.com and is written by Colin Tweel.
Colin Tweel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Colin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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