Secure electronic payment solutions VeriFone Systems Inc (NYSE:PAY) is scheduled to release its first-quarter earnings report after the close of trading on Tuesday. Currently, Wall Street is expecting a profit of 41 cents per share from the firm, a figure that is up solidly from the same quarter last year.
That said, investors will be keeping a close eye on guidance for VeriFone.
Historically, the company is on solid ground, at least from a short-term perspective. VeriFone has bested the consensus estimate in each of the past four reporting periods, topping Wall Street’s estimated by an average of 23.5%. As a result, EarningsWhisper.com reports that VeriFone’s first-quarter whisper number comes in 3 cents higher than the consensus at 44 cents per share.
The brokerage community generally holds PAY in bullish regard. According to data from Thomson/First Call, PAY stock has attracted 11 “buy” ratings, nine “holds,” and no “sell” ratings.
However, there is room for improvement, as the 12-month price-target of $40 represents a modest premium of just 15% to yesterday’s close.
On the options front, short-term traders appear to be extremely bullish when it comes to PAY’s outlook. Specifically, the March/April put/call open interest ratio currently rests at a slim 0.18, with calls more than quintupling their put counterparts. Zeroing in on the March series, the put/call open interest ratio slips slightly to 0.17.
Click to Enlarge Overall, March option implieds are pricing in a potential post-earnings move of about 6% for PAY stock. This places the upper bound at $36.58, with the lower bound arriving at $32.42. A rally could push PAY above long-term resistance at $36, potentially leading to significant follow-through buying from technical traders. A post-earnings selloff, meanwhile, would leave PAY just above potential support in the $32 region.
2 Trades for PAY Stock
Call Spread: Those traders looking to jump on the bullish bandwagon in the options pits might want to consider the Apr $35/$36 bull call spread. At last check, this spread was offered at 11 cents, or $11 per pair of contracts. Breakeven lies at $35.11, while a maximum profit of 89 cents, or $89 per pair of contracts, is possible if PAY closes at or above $36 when April options expire.
Traders should also note that a double can be had at $35.22, while a triple is possible at $35.33, so set your limit orders appropriately in order to lock in profits.
Put Sell: If a call spread doesn’t set well with your risk assessment of PAY, or if you don’t think the stock is going anywhere anytime soon, then a put sell may be a way to advantage of the stock’s technical support. Along those lines, a Mar $30 put sell might be a way to capitalize on PAY’s technical backdrop.
At last check, the Mar $30 put was bid at 15 cents, or $15 per contract. The upside to this put sell strategy is that you keep the premium as long as PAY stock closes above $30 when March options expire. The downside is that should PAY trade below $30 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $30 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
