Here's Why Investors Should Offload VeriFone (PAY) Stock

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On Dec 16, Zacks Investment Research downgraded VeriFone Systems Inc.PAY to a Zacks Rank #5 (Strong Sell). The downgrade can be attributed to negative estimate revisions witnessed over the last seven days following fourth-quarter 2017 results.

Although the company reported impressive results, the soft guidance provided by the company for the forthcoming quarter makes us skeptical about near-term prospects.

The company witnessed eight downward revisions for the current quarter and seven for fiscal 2018 over the last seven days, with no upward revision. The trend has caused the Zacks Consensus Estimate for first-quarter fiscal 2018 and fiscal 2018 to decline 24.4% and 3.8% to 25 cents and $1.51, respectively.

Notably, VeriFone's shares have gained 3% year to date, substantially underperforming the 38.3% rally of its industry .

Key Factors

VeriFone's business has been affected by macroeconomic headwinds in emerging markets. Apart from this, the Electronic payment system and services market is highly competitive and fragmented. Increased pricing pressure is an overhang.

VeriFone faces significant competition from a number of local providers in the domestic as well as Latin America and Asia Pacific markets. In the last reported quarter, non-GAAP revenues from North America and Asia Pacific fell 9.6% and 3.8% from the year-ago quarter, respectively.

The divestitures of Petro Media and the Taxi businesses are anticipated to hurt top-line growth in the near term.

Moreover, newly-launched product like Carbon will take some time to contribute to growth.

Further, the company's leveraged balance sheet may limit future expansion and worsen risk profile. Higher interest rate on debt is expected to negatively impact profits.

Verifone Systems, Inc. Revenue (TTM)

Verifone Systems, Inc. Revenue (TTM) | Verifone Systems, Inc. Quote

Key Picks

A few better-ranked stocks in the broader technology sector include IPG Photonics Corporation IPGP , NetApp Inc. NTAP and NVIDIA Corporation NVDA , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks Rank #1 stocks here.

Long-term earnings growth rate for IPG Photonics, NetApp and NVIDIA is projected to be 12%, 11.3% and 10.3%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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