Verifone Â¿¿ Looking More Like A Value Stock Every Day
Written by SiHien Goh, Kapitall Contributor There are very few days when a stock takes a 40% dive and I wish it crashed even more. Verifone [ PAY] is beginning to feel like one of them. If you haven’t noticed, Verifone’s stock dropped 42.8%on Feb 21, 2013 after it announced in a press release that it now expects net income for the first quarter ending January 30 th to be significantly less than what it originally guided. The company now believes that its first quarter net income will come in at 45 cents to 50 cents a share as compared to Wall Street’s consensus of 80 cents a share.
The result? Verifone was punished viciously by the market and a billion dollars was wiped off its market value in less than 24 hours, leaving the company at a market cap of 1.97 billion. In a research note to its clients, SunTrust expressed its shock and simply commented, “We are simply at a loss to explain such a huge miss.” The rest of the Street also threw in the towel — Deutsche Bank now rates Verifone as a sell, dropping its price target to $15 a share; Wedbush reduced its price target from $33 to $22 while UBS similarly cut its rating from $39 to $26. Reading into some of the market commentary on this company, it seems as if Verifone should be immediately euthanized and put to bed as soon as possible. But is it really such troubled times at the largest credit card swipe machine maker in the world?
Verifone engages in the design and marketing of point-of-sale electronic payment devices, security and encryption software and other value-added services. If you have used a debit or credit card to pay for your meal at a McDonalds or a White Castle chain, chances are that you would be swiping your card on a Verifone machine. If you live in New York City, look out for the Verifone card reader the next time you are paying with a credit card on a yellow cab. In fact, the next time you go to a petrol kiosk that allows you to pay at the pump with a swipe of your credit card, look out again for Verifone’s logo imprinted on the card machine. Simply put, Verifone is the market leader in payment terminals. According to Value Line Research, the company works with 70% of the top 1,000 retailers in America and 83% of the top 200. In fact, it really only has one other strong competitor in the payment devices business and that is French-based Ingenico SA (used in 7-Eleven convenience stores in New York City). With an impressive line-up of customers and such an entrenched business, does it really sound like a dying business to us?