Shares of credit card swipe machine maker VeriFone Systems Inc. nearly halved in value after the company slashed its profit outlook, with analysts questioning why management was so off with its forecasting when peers were not doing so badly.
VeriFone shares slid to $17.93, their lowest in nearly three years, and at least seven analysts cut their price targets on the stock. Deutsche Bank, in a client note, said the company had finally admitted it had failed to execute on its plans to move to a more subscription-based service model.
Several analysts suggested that VeriFone's new chief financial officer had taken a more conservative accounting approach at the company, which already faces a court case for a past accusation of reckless accounting.
The company will likely be sold, SunTrust Robinson Humphrey analyst Andrew Jeffrey wrote in a note, cutting his rating on the stock to "neutral" from "buy".
"Management credibility has been lost," he said. "Market share losses are deeper and more persistent than we had previously believed."
"We believe VeriFone will be acquired before it completes its business model transition."
Deutsche Bank analyst Bryan Keane said he could not suggest who might be interested in buying the company. "...We still think the valuation is expensive, when you look at the free cash flow the company generates," he told Reuters.
VeriFone, based in San Jose, California, sells payments equipment to shops and restaurants. The company is seeking to move more to a service model for its systems, rather than straight equipment sales.
The company might have been aggressively shifting to services from hardware sales and the management took its eye off the ball in terms of product evolution, allowing rival Ingenico SA to take market share, analysts said.
Equipment and related software sales brought in $1.34 billion, or 71.8 percent of total revenue, in the year ended Oct. 31. Services revenue doubled to $527 million from a year earlier.
VeriFone largely attributed its lower-than-expected first quarter estimates to weakness in Europe, lower-than-expected revenue from large customers in Brazil, delayed customer spending on major projects, and the cancellation of a Washington, D.C. taxi project.
Deutsche, which rates the stock a "sell", slashed its price target to $15 from $27. The brokerage said past acquisitions had masked what was happening at the company and that it had long been wary of its "aggressive accounting recognition."
"The recent CFO retirement/resignation and the first-quarter revenue recognition requirements could also suggest accounting red flags in prior quarters," Deutsche said, noting the latest quarter's accounts had been signed off by the new CFO.
A U.S. appeals court revived a proposed securities class action against VeriFone in December over its 2007 restatement of results, ruling that the lawsuit properly alleged that VeriFone Chief Executive Douglas Bergeron was "reckless" as to the truth of financial reports.
"I think Douglas Bergeron is well embedded in that company, and it'll take a few more blowups before the board will kick him out," Deutsche's Keane said. "I don't think he's going anywhere anytime soon."
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