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Should You Buy This Turn Around?

Electronic payment solutions provider VeriFone Systems (NYSE: PAY  ) has had a tough time this year. Shares have fallen off a cliff as VeriFone's business strategies have been called into question and competitors have eaten into its market share. That's why the 10% pop that VeriFone enjoyed last Friday came as a welcome relief to shareholders.

VeriFone beat consensus estimates in the third quarter, and its outlook for the current quarter was also decent. But does one set of good results make VeriFone attractive?

The company, which was once slated to ride the growth of digital payments, lost its way as it tried to change its business model and failed to respond to customer needs. But VeriFone's management stated in June that they'll try and get the company back on track after recognizing their mistakes.

Back on track
Recent moves and developments suggest that VeriFone is indeed moving in the right direction. For starters, research and development spending was up 19% in the previous quarter from the year-ago period. VeriFone also introduced a new payments software suite known as GlobalBay Merchant, and had signed up around a dozen partners that serve 500,000 merchants. VeriFone is in the process of adding more partners as it looks to build a substantial customer base going forward. 

VeriFone claims to have gained market share at a major retailer in the U.S. It is also in partnership with big names such as Costco, Lowe's, McDonald's, Kroger, Safeway, etc. for providing payment solutions. Then there were other positives, such as winning a tender for 450,000 terminals in Russia, a contract renewal with India's biggest petroleum company, and customer wins in Brazil and the U.K. 

These wins should certainly boost investors' confidence, as VeriFone was probably losing out on contracts to peers such as Ingenico (NASDAQOTH: INGIY  ) . Ingenico would be deploying contact-less payment terminals for Banco Nacional de México (Banamex). Even VeriFone was in the race for this contract and ultimately lost out.

Banamex is looking to put the 1 million contactless cards it issued earlier this year to use, which is why it is looking to roll out payment terminals to around 30,000 retailers. So Banamex's choice of Ingenico's solution over VeriFone was no doubt a setback. But now that VeriFone has replaced existing suppliers in the U.K. and Brazil, perhaps the company's products are finally gaining some traction.

Mobile moves
VeriFone also announced a mobile platform last month -- Way2ride -- which would provide taxi passengers in New York City a new payment method. What's more, VeriFone is also partnering with Hailo, a taxi hailing app. VeriFone is serving as the payment software platform in this partnership and expects more apps to join its platform going forward. 

VeriFone's recent mobile initiatives such as Way2ride and the fact that its mobile platform was selected by French railroad company SNCF are certainly positives. The company states that merchants are interested in its next-gen mobile platforms as well. But VeriFone needs to keep an eye on disruptive players such as eBay (NASDAQ: EBAY  ) .

eBay recently announced PayPal Beacon, which will "enable consumers to pay at many of their favorite stores completely hands-free." PayPal Beacon will use a Bluetooth device to connect to consumers' smartphone that should have a PayPal app on it for Beacon to detect. The control will remain in the hands of the users, who can decide if they want to check into a particular store or want to permit a completely hands-free purchase at certain locations. 

Beacon would be able to plug in to point of sales systems compatible with PayPal. But the fact that eBay has been slowly but steadily making impressive moves, including PayPal Here, is proof of the company's technological prowess.

The bottom line
The recent quarterly report gave VeriFone investors a lot to cheer about. The company paid down $160 million of its debt, boosted R&D spending, and landed some big contracts. It looks like VeriFone is making a good effort to turn its business around, and at a forward P/E of 15, it might prove to be a good buy if the rebound continues.

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