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VeriFone Systems’ Acquisition Will Expand Its Business

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Price movement of VeriFone Systems

VeriFone Systems (PAY) has a market capitalization of $2.5 billion. It fell by 5.0% to close at $22.47 per share as of January 15, 2016. Its price movements on a weekly, monthly, and year-to-date (or YTD) basis are -9.2%, -15.2%, and -19.8%, respectively.

Technically, the stock has broken its support and is trading below all its moving averages. Currently, PAY is trading 16.0% below its 20-day moving average, 19.2% below its 50-day moving average, and 29.3% below its 200-day moving average.

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The iShares Morningstar Small-Cap ETF (JKJ) invests 0.65% of its holdings in VeriFone Systems. The ETF tracks a market-cap–weighted index of US small-cap core stocks. The index selects stocks from 90%–97% of market capitalization that fall into Morningstar’s core style organization. The YTD price movement of JKJ is -6.1% as of January 14, 2016.

The market capitalizations of VeriFone’s competitors are as follows:

  • PayPal Holdings (PYPL) — $39.5 billion
  • NCR (NCR) — $3.4 billion
  • Heartland Payment Systems (HPY) — $3.3 billion

VeriFone’s acquisition of AJB Software

VeriFone Systems has entered into an agreement to acquire AJB Software Design to provide end-to-end solutions for large retailers in the United States and Canada. This acquisition will help VeriFone and its partners to deliver payment and commerce services that meet client demands with simplicity, security, flexibility, and functionality. The acquisition will close during fiscal 2Q16.

AJB has also extended the following services for VeriFone:

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  • A solution certified by major Canadian banks and processors for EMV (Europay, MasterCard, and Visa) acceptance
  • Support for VeriFone and non-VeriFone devices, increasing merchants’ abilities to manage and seamlessly expand their payment systems
  • The ability to offer merchants a number of subscription-based hosting options

Performance of VeriFone in recent fiscal 4Q15 and fiscal 2015

VeriFone Systems reported fiscal 4Q15 total revenue of $514.1 million, a rise of 4.8% compared to $490.5 million in fiscal 4Q14. Its net income and EPS (earnings per share) rose to $38.2 million and $0.33, respectively, in fiscal 4Q15, compared to $31.1 million and $0.27, respectively, in fiscal 4Q14.

Its non-GAAP (generally accepted accounting principles) net income and non-GAAP EPS rose to $56.2 million and $0.49, respectively, in fiscal 4Q15, rises of 12.2% and 11.4%, respectively, compared to the prior year’s period.

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Fiscal 2015 results

In fiscal 2015, VeriFone reported total revenue of $2,000.0 million, a rise of 7.0% YoY (year-over-year). Its net income and EPS rose to $79.1 million and $0.68, respectively, in fiscal 2015, compared to -$38.1 million and -$0.34, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents fell by 16.5%, and its inventory rose by 4.3% in fiscal 2015. Its debt-to-equity ratio rose to 1.6 in fiscal 2015, compared to 1.5, respectively, in fiscal 2014.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of VeriFone are 33.0x and 2.9x, respectively, as of January 15, 2016.

Projections

The company has projected the following for fiscal 1Q16:

  • Non-GAAP net revenues of $500.0 million
  • Non-GAAP diluted EPS of $0.45

Additionally, VeriFone expects the following for fiscal 2016:

  • Non-GAAP net revenues in the range of $2,090.0–$2,110.0 million
  • Non-GAAP diluted EPS in the range of $2.15–$2.17

These projections reflect North America revenue growth of 5% and do not reflect revenue from pending acquisitions.

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