Has Ingenico Done VeriFone A Favor?

VeriFone (NYSE:PAY) is a curious company. It is about to operate in a duopoly that arguably should not exist - who would have thought that there would be just two providers of electronic payment solutions for credit, debit and gift card transactions? It also happens to carry a rather rich multiple. 

What makes the situation even more interesting today is that its sole pure-play rival may have inadvertently done the company a major favor. If rumors and numerous press accounts are accurate, Ingenico (perhaps under some pressure from the French government) rejected a buyout bid from American conglomerate Danaher (NYSE:DHR).    

The Deal That Wasn't 

According to those same sources, Danaher offered $1.9 billion, or about 28 euros per share, for Ingenico. Although that deal would not have represented much of a premium to the stock's recent trading price, these shares were below 16 euros before the summer began. Then again, a $1.9 billion bid would not represent all that much of a premium in terms of multiples either. Based on analyst expectations, that deal would represent only 1.6 times sales and less than 10 times EBITDA - relatively meager given that VeriFone trades at approximately twice those multiples.

    
Not Just About the Money? 
If reports are to be believed, it was not just the valuation of the deal that was an issue. Apparently, the French government sees Ingenico as some sort of "essential" company to France's electronics industry and is not willing to see a foreign company acquire it.

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Nothing Appetizing About ConAgra

Underperforming companies do not turn themselves around quickly, if they ever do at all. Consequently, there was no reason to think that ConAgra (NYSE:CAG) was going to look any better after this quarter than it did it last quarter. Still, another unimpressive quarter and another look at the fundamentals makes it fairly apparent that there is really nothing stirring in this name. 

A Weak Quarter, As Expected
While ConAgra had telegraphed a tough quarter in its last quarter's guidance, the company did even worse than expected and pre-announced this a little while ago. Consequently, the disappointing performance results announced on Tuesday did not take the Street by surprise.

Revenue fell 2% this period, as volume growth of 1% could not outweigh price and mix pressures that pushed down by 3%. Compounding problems, gross margin contracted over 300 basis points (to about 24%), while operating margin fell almost 200 basis points to less than 11%. All of that translated into a decline in operating income of 14% and, ultimately, a decline of nearly 17% in earnings per share. (For more, see Can Earnings Guidance Accurately Predict The Future?)

A Tough Environment and Weak Brands
ConAgra is taking body-blows from several angles all at once. A weak economy has consumers pinching pennies and loading up the cart with more private-label goods when they go to Wal-Mart (NYSE:WMT) or Target (NYSE:TGT). On top of that, though, people just do not seem to like ConAgra's brands as much as they do those of General Mills (NYSE: GIS), Kellogg (NYSE:K) or Kraft (NYSE:KFT) - every branded food company is dealing with the same domestic pressures, but ConAgra seems to be faring relatively worse and losing share despite price cuts. Making matters worse, the company does not have a strong foreign business to offset the weakness in the U.S.


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Should Investors Pay Any Price For VeriFone?

There is no question that electronic payment specialist VeriFone (NYSE:PAY) was hit hard both by the recession and an accounting problem, but there is equally no question that the stock has rebounded sharply since its lows in early 2009. With electronic payments and credit card usage growing throughout the world, is there still enough runway for this company to validate what looks like a very high valuation? 

A Solid End To The Fiscal Year
VeriFone has done relatively well in terms of beating estimates over the past year or so, and the company ended this fiscal year on the same note. Revenue rose 27%, with 40% growth in the U.S. and 18% internationally.

Profitability also improved this quarter. Gross margin (on a non-GAAP basis) rose about two points to 40%, and earnings were better on an operating and net basis, whether investors chose to use GAAP or non-GAAP accounting.


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