VeriFone Systems: Earnings Preview

| About: VeriFone Systems, (PAY)

VeriFone Systems Inc. (NYSE:PAY) is expected to report its second quarter fiscal 2011 earnings after the market closes on Thursday, June 2, 2011.

VeriFone Systems had outperformed the Zacks Consensus Estimate over the trailing four quarters. The average earnings surprise was a positive 8.21%, implying that the company has outdone the Zacks Consensus Estimate by that magnitude over the last four quarters.

First-Quarter Highlights

VeriFone Systems in the first quarter 2011 posted a net income (excluding one-time charges) of 35 cents per share, easily outpaced the Zacks Consensus Estimate of 33 cents.

The company reported revenues of $284 million, up 27% year over year, beating the Zacks Consensus Estimate of $268 million. There was a growth in revenues across all segments. Further, Latin America and Europe were the growth engines reporting year-over-year growth rates of 23% and 14%, respectively.

Agreement of Estimate Revisions

In the absence of any significant news, none of the 5 analysts providing estimates changed their earnings estimates in the last 30 days.

Magnitude of Estimate Revisions

In the last thirty days, the Zacks Consensus Estimate for 2011 was stable at $1.57 per share, representing a year-over year growth of 48%.

Estimate for the second quarter was also static at 38 cents per share, reflecting a growth a year-over year growth of 58.3%.

Our Take

We believe that the company is expanding its footprint in international markets. Recently, VeriFone entered into an agreement to acquire South Africa-based Destiny Electronic Commerce (Pty) Ltd. in an effort to expand in developing economy recently.

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

With resurgence in the economy, VeriFone Systems is well positioned to deliver accelerated revenues. Moreover, demand for newer services will also fuel VeriFone’s growth.

For fiscal 2011, VeriFone projected earnings per share (excluding one-time charges) in the range of $1.75 - $1.80. Revenues are anticipated between $1.150 billion and $1.160 billion.

For the second quarter of fiscal 2011, the company expects earnings per share to range from 42 cents - 43 cents. Revenues are projected between $280 million and $284 million.

Currently, we are maintaining our Outperform recommendation on the stock ahead of the second quarter results.