Verifone (PAY) Set to Soar, Here's How...
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Why isn't Verifone (NYSE: PAY) trading higher?
According to two key sources, mobile payments and transactions are catching on...and in a big way. For example, with it's last quarterly report, eBay (Nasdaq: EBAY) said the PayPal "expects to generate more than $3.5 billion in mobile net total payment volume (TPV) in 2011, up from $750 million in 2010." That's a nearly four-fold increase, folks.
Additionally, with Starbucks (Nasdaq: SBUX) quarterly report, issued after the market closed yesterday, it said mobile payments have topped the 20 million mark since it was introduced in January. Further, CEO Howard Schultz said there are currently about 1 million smartphones in the U.S. with at least 1 registered Starbucks Card, and both the number and value of mobile transactions are on the rise. Starbucks also said terminals were at 9,000 Starbucks locations nationwide, with current support for Android and Research In Motion (Nasdaq: RIMM) BlackBerry devices.
The two companies highlight two different, yet similar transactions. With PayPal, users can browse offerings on eBay (or other commerce sites where PayPal is used), select an item, and pay for it from virtually anywhere. Starbucks utilizes near-field communication (NFC), allowing users to swipe mobile devices in front of a reader to pay for their daily java fix.
With companies like Google (Nasdaq: GOOG), MasterCard (NYSE: MA), Visa (NYSE: V), Discover (NYSE: DFS), and Apple (Nasdaq: AAPL) all eying the elimination of a rudimentary credit card in favor of NFC and other mobile payment systems, look for Verifone, a leader in NFC and mobile payment technology, to take off as orders for terminals and systems continue to roll in.
To keep up, investors might want to track simple numbers like ratio of smartphones to overall phones sold, iPhone and iPad numbers from Apple, PayPal, as well a some bank numbers (most larger financial institutions have apps for transactions now. JPMorgan, et al, even allow you to photograph a check to deposit it into your account, which seems very surreal at first, but makes sense after a few uses).
For those looking for more color on progress so far, Verifone is expected to report third-quarter earnings on December 14th, after the market closes. So far, the change has been showing up in Verifone's financials, with gross profit rising from 36.5 percent to 41.5 percent, on a year-over-year basis, last quarter. Notably, the number was down from 41.9 percent the preceding quarter.
And shares may still have significant room to run in 2012. Taking out more volatile years, from 2006 to 2009, Verifone has traded with an average price of 34.7 times earnings since the start of 2010. With consensus estimates calling for $2.46 of earnings in 2012, multiplying the two numbers yields a share price of $85.36 or so. Reducing the multiple to 25 times, a more conservative estimate, and you're still at a share price of $61.50, about 41 percent above its current trading range.
Or factor in required yields to calculations. Using an expected EPS growth rate of 25 percent over the next three years, a perpetual 8 percent growth rate, discounting for risk-free rate of about 2 percent on a 10-year Treasury, the benchmark return (S&P 500) at 10 percent (slightly generous), and with Verifone carrying a 1.9 beta, you end up with a target of $61.68 for 2012 or a little thereafter.
Shares are down 1.3 percent Friday afternoon.
According to two key sources, mobile payments and transactions are catching on...and in a big way. For example, with it's last quarterly report, eBay (Nasdaq: EBAY) said the PayPal "expects to generate more than $3.5 billion in mobile net total payment volume (TPV) in 2011, up from $750 million in 2010." That's a nearly four-fold increase, folks.
Additionally, with Starbucks (Nasdaq: SBUX) quarterly report, issued after the market closed yesterday, it said mobile payments have topped the 20 million mark since it was introduced in January. Further, CEO Howard Schultz said there are currently about 1 million smartphones in the U.S. with at least 1 registered Starbucks Card, and both the number and value of mobile transactions are on the rise. Starbucks also said terminals were at 9,000 Starbucks locations nationwide, with current support for Android and Research In Motion (Nasdaq: RIMM) BlackBerry devices.
The two companies highlight two different, yet similar transactions. With PayPal, users can browse offerings on eBay (or other commerce sites where PayPal is used), select an item, and pay for it from virtually anywhere. Starbucks utilizes near-field communication (NFC), allowing users to swipe mobile devices in front of a reader to pay for their daily java fix.
With companies like Google (Nasdaq: GOOG), MasterCard (NYSE: MA), Visa (NYSE: V), Discover (NYSE: DFS), and Apple (Nasdaq: AAPL) all eying the elimination of a rudimentary credit card in favor of NFC and other mobile payment systems, look for Verifone, a leader in NFC and mobile payment technology, to take off as orders for terminals and systems continue to roll in.
To keep up, investors might want to track simple numbers like ratio of smartphones to overall phones sold, iPhone and iPad numbers from Apple, PayPal, as well a some bank numbers (most larger financial institutions have apps for transactions now. JPMorgan, et al, even allow you to photograph a check to deposit it into your account, which seems very surreal at first, but makes sense after a few uses).
For those looking for more color on progress so far, Verifone is expected to report third-quarter earnings on December 14th, after the market closes. So far, the change has been showing up in Verifone's financials, with gross profit rising from 36.5 percent to 41.5 percent, on a year-over-year basis, last quarter. Notably, the number was down from 41.9 percent the preceding quarter.
And shares may still have significant room to run in 2012. Taking out more volatile years, from 2006 to 2009, Verifone has traded with an average price of 34.7 times earnings since the start of 2010. With consensus estimates calling for $2.46 of earnings in 2012, multiplying the two numbers yields a share price of $85.36 or so. Reducing the multiple to 25 times, a more conservative estimate, and you're still at a share price of $61.50, about 41 percent above its current trading range.
Or factor in required yields to calculations. Using an expected EPS growth rate of 25 percent over the next three years, a perpetual 8 percent growth rate, discounting for risk-free rate of about 2 percent on a 10-year Treasury, the benchmark return (S&P 500) at 10 percent (slightly generous), and with Verifone carrying a 1.9 beta, you end up with a target of $61.68 for 2012 or a little thereafter.
Shares are down 1.3 percent Friday afternoon.
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