Verifone Down 26% In June, But Imperial Capital Remains Bullish

VeriFone Systems Inc (NYSE: PAY) reported lower-than-expected 2Q16 results and reduced its guidance partly due to a delay in EMV certification. Imperial Capital’s Saliq Khan maintained an Outperform rating for the company, while reducing the price target from $32 to $24.

Verifone reported its 2Q revenue and adjusted EPS short of the estimates. Although the company exceeded its quarterly revenue guidance, adjusted EPS fell below estimates.

“Management noted ongoing softness in media sales, delays in the U.S. EMV certifications, an increasingly competitive pricing environment, and a slowdown in select emerging economics as contributing factors to lower than anticipated results,” analyst Saliq Khan wrote.

Delay In EMV Certification

The delay in EMV certifications in the US, caused mainly by certification and testing complexities, is adversely affecting the implementation of higher margin attached services, including payment-as-a-service and encryption.

Moreover, in the US, multilane revenue declined both on a q/q and y/y basis, mostly on account of higher sales of EMV devices to Tier 1 retailers in 2Q15. Verifone has about 80 percent market share in Tier 1, with nearly 100 percent retention rates, Khan noted.

Undergoing Strategic Review

Management is undergoing a strategic review of the company’s businesses to overcome adverse market conditions. Verifone is evaluating options to restructure its non-core and underperforming businesses. Within this, the company has identified about 5 percent headcount reduction, which is expected to generate about $30mn of incremental savings in 2017. Khan expects Verifone to begin recording savings at the start of 4Q16.