Compass Point is going against the grain and upgrading VeriFone (NYSE: PAY) from Neutral to Buy with a price target of $28 following poor Q1 preliminary results. The firm said VeriFone is bad but not broken.
The analyst comments, "Fallen angel VeriFone released preliminary 1Q'FY13 results that were materially below our, the consensus, and the company's expectations. The primary driver of the poor performance was missed hardware and software related revenue opportunities due to increased focus and investments on longer-term services initiatives. Management is adamant that the business model is not structurally broken. While the recently pursued Home Depot relationship was not won, the company's existing customer base is full of brand names and hard to replicate. Plans are in place to ramp R&D in order to accelerate product launches to meet ongoing demand from these customers. While there is lingering uncertainty surrounding potentially disruptive threats as well as a number of serious historical accounting concerns to be conscious of, the shares are trading near $20.50 in the pre-market down from the 52 week high of $56. We consider the risk/reward at this level favorable. Our $28 price target equals 10x our estimate of next year's Adjusted EPS."
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