HYC Hypercom Corp

VeriFone Systems Inc. (PAY) recently reported results for the second quarter of fiscal 2011. The company posted a net income (excluding one-time charges but including stock-based compensation expense) of 38 cents per share, in line with the Zacks Consensus Estimate.

VeriFone upgraded its guidance for fiscal 2011. For fiscal 2011, VeriFone projects revenues between $1.170 billion and $1.180 billion. Earnings per share (excluding stock-based compensation and one-time charges) are projected around $1.80–$1.83. This excludes any impact from the Hypercom acquisition.

For the second quarter of fiscal 2011, management expects revenues between $295 million and $300 million in the third quarter of 2011. Earnings per share are projected around 45 cents to 46 cents.

Second Quarter Earnings Flashback

VeriFone reported revenues of $292 million in the second quarter of fiscal 2011, up 21% year over year and up 3% sequentially, beating the Zacks Consensus Estimate of $283 million. There was growth in revenues across all segments.

North America delivered a 14% year-over-year growth. Revenue from international markets grew 28% year over year. Latin America grew 11%, Europe grew 41% and Asia increased 25%.

Net income came in at $25.2 million or 27 cents compared with a net income of $32.0 million or 35 cents per share in the previous quarter and a net income of $20.2 million or 23 cents in the year-ago quarter.

Agreement of Estimate Revisions

Fiscal earnings estimates have moved in both directions for VeriFone since the earnings release. For fiscal 2011, out of 5 analysts, 3 analysts have negatively revised their estimates while 1 moved upward in the last 7 days. For fiscal 2012, 2 out of 5 analysts covering the stock have revised their estimates upward, while 2 have lowered during the same time period.

Magnitude of Estimate Revisions

In the last seven days, the Zacks Consensus Estimate for 2011 was stable at $1.57 per share. For 2011, the estimates range from $1.50 to $1.64. For fiscal 2012, earnings estimates have increased by 4 cents to $1.96 during the same time period.

Our Take

We believe that with resurgence in the economy, revenue growth at Verifone should accelerate in fiscal 2011. Moreover, demand for newer services will also fuel VeriFone’s growth.

The company continues to expand its footprint in international markets. Last year, the company announced that it would acquire its rival Hypercom Corporation (HYC) for approximately $7.32 per share or $485 million. The acquisition is expected to close in the second half of 2011.

We see a lot of potential for growth in the coming quarters. Therefore, we are maintaining long term Outperform recommendation on the stock.

However, the results in the quarter suffered due to increase in share count and higher discretionary expenses. Thus, the stock has a Zacks #3 Rank, which translates into a short-term Hold’ rating.

Based in San Jose, California, VeriFone provides solutions for electronic payment systems for the financial, retail, hospitality, petroleum, transportation, government and health care vertical markets.

About Earnings Estimate Scorecard

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