Earnings Preview: VeriFone Systems Inc (PAY)

VeriFone Systems Inc (PAY) is due to report earnings tonight

Dec 12, 2016 at 11:07 AM
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Payment processor VeriFone Systems Inc (NYSE:PAY) is due to report fiscal fourth-quarter earnings after the close this evening. Heading into the event, the stock is down 0.2% at $16.42, and options traders seem to be bracing for a post-earnings sell-off. Given PAY's recent post-earnings history, however, that's hardly surprising.

Over the past eight quarters, PAY stock has averaged a one-day swing of 7.8% in either direction the session after earnings, moving higher on four occasions. But the last two quarters saw the stock plunge 16.4% and 24.7% lower in the post-earnings sessions. Perhaps that's why the options market is currently pricing in a hefty 18.2% move for Tuesday.

Meanwhile, the equity's puts are popular today, trading at six times the expected intraday pace, outnumbering calls in the process. In fact, put volume is running in the 98th percentile of its annual range. Buyers of near-term PAY options are likely forking over some hefty premiums today, too, considering the stock's 30-day at-the-money implied volatility is parked at a 12-month high of 78.4%.

Taking a step back, options traders have been picking up PAY puts over calls at an unusual rate in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.84 ranks higher than 77% of all comparable readings taken in the past year.

There's plenty of skepticism outside of the options arena, as well. Short interest on PAY edged up by 7.8% during the last two reporting periods, and now accounts for 9.3% of the security's available float. At average daily trading volumes, it would take about a week for short sellers to cover their bearish positions. Plus, 13 of the 19 analysts tracking PAY rate the stock a lukewarm "hold," with J.P. Morgan Securities lowering its price target to $17 from $20 just this morning.

It's not only the stock's earnings history that has inspired these pessimistic points of view, either. VeriFone Systems Inc (NYSE:PAY) has given up 41% of its value so far in 2016, and has been hitting a series of lower lows since mid-2015. The shares have been slumping under pressure from the 80-day moving average over the past week, but they seem to be holding onto support in the $15-$16 region, which has capped the stock's losses since May 2010.

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