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VeriFone Systems' (PAY) Q1 Earnings: Will it Pull a Surprise?

VeriFone Systems, Inc.PAY is set to report results for the first quarter of fiscal 2016 on Mar 10, after the market closes. Last quarter, the company posted a positive earnings surprise of 12.50%. Moreover, it has delivered positive surprises in three of the trailing four quarters, translating to an average positive surprise of 9.42%.

Let's see how things are shaping up for this announcement.

Factors to Consider

VeriFone seems well-positioned to gain from the ongoing demand shift toward EMV and NFC-enabled terminals. Increasing adaptability of new payment solutions from Apple AAPL , Alphabet GOOGL and Samsung in the mobile payments industry is a positive for VeriFone.

Additionally, the company is focused on increasing its operational efficiency by taking a number of cost-cutting and streamlining measures. Moreover, accretive acquisitions have played an important role in VeriFone's business expansion. In the past few months, the company acquired Curb and InterCard AG, a German PaaS provider. While the company boosted its presence in the "taxi network of card acceptance" with Curb, it expanded service offerings by leveraging InterCard's retail clientele across Europe.

Nonetheless, VeriFone faces significant competition from a number of local providers in the domestic, international as well as emerging markets such as China and India. At the same time, we believe the company's highly leveraged balance sheet can limit its developmental activities.

VeriFone expects non-GAAP revenues of approximately $500 million for the fiscal first quarter. Management predicts non-GAAP earnings per share of 45 cents.

Earnings Whispers

Our proven model does not conclusively show that VeriFone will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: VeriFone has an Earnings ESP of -2.63%. This is because the Most Accurate estimate stands at 37 cents per share whereas the Zacks Consensus Estimate is pegged a penny higher at 38 cents.

Zacks Rank: VeriFone's Zacks Rank #3 increases the predictive power of the ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

The following stock which, according to our model, has the right combination of elements to beat earnings in its upcoming release:

Zumiez, Inc. ZUMZ has an Earnings ESP of +2.08% and a Zacks Rank #2.

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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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