Shares of VeriFone (NYSE:PAY) tumbled close to 40% on Thursday as investors digested the company's disappointing quarterly earnings report and analysts reacted with a string of downgrades.
Citigroup (NYSE:C) slapped the San Jose, Calif.-based maker of credit-card swipe machines with a “neutral” rating from “buy,” citing VeriFone's “long uphill battle to rebuild trust and belief in the company” amid weak expectations and a rapidly changing payments market.
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VeriFone late Wednesday revealed current-quarter estimates below the consensus and estimated soft first-quarter earnings. Its shares fell 38% on Thursday, reaching a two-and-a-half year low of $19.43.
Citi said the selloff is justified, especially since the unexpected nature of the underlying issues and sheer size of these problems have left “many questions unanswered.”
“The magnitude of the reduction in guidance is startling and speaks to broad execution issues, in our opinion,” Citi analyst Philip Stiller said in a note.
VeriFone, whose profit plunged 25% in the quarter ended in January, said results were impacted by softness in Europe and customers delaying major projects amid the still downtrodden economy.
In addition to Citi, VeriFone was served with downgrades from JPMorgan (NYSE:JPM), Piper Jaffray (NYSE:PJC) and SunTrust (NYSE:STI). Other brokerages kept their ratings but lowered their price targets.
Another major reason for VeriFone's current dilemma, they say, is the fact that the millions of dollars it spent on acquisitions over the last few years, including the buy of Europeans payments company Point International in 2011, have been mismanaged and poorly executed.
“While investors have and will continue to point to emerging competition as the source of PAY's problems, we believe it has more to do with the growing complexity of the business following two large acquisitions and some self-inflicted wounds in the form of poor execution,” Stiller said.
The sector VeriFone operates in has faced headwinds over the last few years and the industry as a whole has been rapidly changing amid the onset of new technologies, rapid expansion and competition.