JPMorgan Concerned With VeriFone's Emerging Market Weakness, Delays In EMV Implementation

VeriFone Systems Inc (NYSE: PAY) reported an EPS miss and reduced its FY16 EPS guidance. JPMorgan’s Tien-tsin Huang downgraded the rating for the company from Overweight to Neutral, while slashing the price target from $34 to $24. The analyst expressed concern regarding EMV implementation delays and emerging market weakness.

VeriFone reported revenue growth of 9 percent, marginally ahead of expectations. However, DSOs increased 5 days sequentially to 67, resulting in a 19 percent sequential decline in operating cash flow. The company’s EPS miss was driven EMV bottlenecks as well as macro softness and pricing pressure in key emerging markets. The FY16 EPS guidance was lowered by 17 percent to $1.85.

Two Negative Surprises

“We'd heard rumblings of U.S. EMV implementation delays, but didn’t appreciate the magnitude of the impact to PAY that manifested late in the quarter,” analyst Tien-tsin Huang wrote.

Terminal certifications and EMV activations were exerting pressure on merchant acquirers and distributors, causing delays in terminal sales and the recognition of high margin service revenues.

Demand for EMV terminals continues to be robust in the SMB channel and EMV sales could reaccelerate going ahead, Huang said. He added, however, that what was more concerning was signs of intensifying price competition in emerging markets, “which we attribute to weaker volumes and FX.”