VeriFone Systems, Inc. (PAY; $37.10) - SELL Recommendation: $25 Price Target
THESIS: Despite a recent rebound in revenue trends, current elevated expectations, expanded valuation and potential disintermediation skew the risk/reward to the downside. Fundamental improvement is largely priced in at these levels given the 130% forward P/E multiple expansion over the last year. Current valuation is near ten-year highs and does not seem to appropriately discount the substantial longer-term uncertainty around the company's core business.
PAY operates what essentially is a commodity-type business with questionable economics that also carries significant longer-term disintermediation risk. The company's 20% historical operating margins have been cut in half in recent years and it is not clear that they will not remain at such levels...
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