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Why VeriFone Systems Shares Jumped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of VeriFone Systems (NYSE: PAY  ) rose more than 10% Friday after the electronic-payment specialist released solid fiscal third-quarter results.

So what: Quarterly adjusted net revenue decreased 15% year over year, to $418 million, which translated to adjusted net income per diluted share of $0.24. However, analysts on average were expecting adjusted earnings of only $0.20 per share on sales of $400.33 million.

In addition, VeriFone provided in-line fiscal fourth-quarter guidance for non-GAAP net income per share of $0.25, and adjusted revenue of $418 million to $422 million, which easily exceeded analysts' estimates, which called for sales of $411.85 million.

Now what: Interim CEO Richard McGinn expressed excitement for the company's recent acquisition of New Zealand-based ENZ, and went on to state, "Our revenues and earnings exceeded our guidance, cash flow exceeded our expectation, and we paid down $160 million of debt, bolstering our financial position."

In addition, he noted third-quarter Services revenue rose 17% from a year ago, and even as the company paid down debt, they've continued to increase investments in R&D and infrastructure, which should bolster their industry position going forward. As a result, though shares currently trade for a whopping 137 times last year's earnings, they might still prove to be a bargain down the road considering that the earnings multiple falls to 15 times using next year's estimates.

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9/23/2016 4:02 PM
PAY $16.30 Up +0.33 +2.07%
VeriFone Holdings CAPS Rating: ****