NEW YORK (AP) -- Shares of VeriFone Systems Inc. slid Monday, after a Deutsche Bank analyst cut his rating for the electronic payments company, saying it overstated one measure of revenue growth for the first quarter and its prospects for the full year.
THE SPARK: Analyst Bryan Keane said he thinks that VeriFone's calculation of "organic" 11.8 percent revenue growth for its first quarter is too high. Keane argued that the San Jose, Calif. company is using contributions from acquisitions to boost its organic estimates. Organic growth is meant to exclude the effect of recent acquisitions.
He cut his price target for VeriFone by $4 to $40 and lowered his rating to "Sell" from "Hold."
THE ANALYSIS: Keane said it appears that VeriFone came up with its larger numbers by recognizing sales of its products to customers from a recently acquired company as organic growth, when those sales actually shouldn't be included.
The analyst said that while he does expect VeriFone's organic growth to improve this fiscal year, it will be along the lines of a 4 percent to 6 percent increase. But VeriFone on Monday said it backed a prior prediction for organic growth of 10 percent to 15 percent for 2012 and beyond.
"Given poor financial disclosures, lower true organic growth, future business risks and rich valuation, we are no longer comfortable recommending investors hold VeriFone shares," Keane wrote in his Monday note to investors.
VeriFone released a statement Monday, saying that it uses a standard method of calculating organic growth that excludes revenue from companies acquired within the 12 months. It said that Deutsche Bank's calculation includes the revenue of acquired companies as if the company owned them for the current and year-ago period. The company said that Deutsche Bank's analysis did not reflect its "true organic results."
The company had reported first-quarter results in March.
THE SHARES: Down $6.66, or 12 percent, to $47.78 in heavy afternoon trading, after dropping as low as $46.70 earlier in the day. Over the past 52 weeks, the company's shares have traded between $30.25 and $55.89.
Since the beginning of this year, VeriFone's shares have gained about 53 percent through Friday's close.