The terminal swapouts that accompany the EMV chip-card migration in the U.S. should help VeriFone recover from its performance slump, according to Northcoast Research.

"Despite product issues which are likely [to] last another year, we expect EMV adoption in [the second half of 2014] in the U.S. will initiate a return to growth for VeriFone," Northcoast Research reported in an August 29 research note. 

"When you walk into [major national retailers], you find they are often still using terminals that are 10 to 15 years old," Keith Housum, senior vice president and equity research analyst at Northcoast Research, said in a phone interview. "Retailers will have to make a jump."

For VeriFone, the opportunity related to purchases of EMV terminals in the U.S. should add $0.58 in earnings per share between fiscal year 2014 and 2015, and the additional sales for customer-facing terminals due to chip-and-PIN EMV adoption is between $0.12 and $0.29 per share during the same period, the Northcoast research note said.

"You need mobile credit card terminals at restaurants," Housum said in an interview. "And there's also the fast food and quick service restaurants you will need to have PIN pad to accept payments."

Northcoast's third-quarter 2013 revenue estimate for VeriFone is $402.5 million or $2.15 million greater than the company's guidance, though Northcoast said VeriFone still faces headwinds due to the replacement of its Middle Eastern distributor.

VeriFone has struggled over the past year the company suffered poor earnings and VeriFone decided to no longer market its Sail mobile card reader. It has not yet found a permanent replacement for longtime CEO Doug Bergeron, who left in March, and it is working to regain the confidence of frustrated customers that "have been brutally honest about our lack of partnership," interim CEO Richard McGinn said in a June earnings call.

Ingenico, VeriFone's chief rival, has benefited from VeriFone's struggles. Ingenico's payment terminal sales grew 21% in the first half of 2013, though the EMV expansion should enable VeriFone to recover going forward, Northcoast said.

"However, in talking to customers of VeriFone, despite their disdain for former management, [the customers] acknowledge that they need VeriFone to succeed. Customers need the competition, the products and the experience that VeriFone has in order to guarantee a competitive environment," the Northcoast report said.

VeriFone's third quarter earnings call is scheduled for Sept. 5. VeriFone recently has enhanced its product offering by deploying sound-based mobile payments technology in taxis and selling bundled payments services.

Northcoast also weighed in on the impact of mobile point of sale technology, saying "we are well aware of the threat of mobile POS and alternative payment options on VeriFone's model. However, we believe established retailers are more likely to combine their existing fixed terminal use with mobile POS readers and alterative payment methods only serve to increase VeriFone's presence in an ever increasing complicated payment space," Northcoast said in its research note, adding the EMV migration will also "essentially kill the market for simple POS dongles."

"[Mobile point of sale] has always been a market in transition," Housum says.

Mobile card readers are typically offered for free or at a low cost. They plug into a smartphone or tablet, relying on the device's data connection to process swiped card payments.

"The model is in a lot of trouble when it comes down to the EMV migration," Housum says. "The dongle that now costs a dollar or so to make will cost $30 to $50."

VeriFone and Ingenico would not comment for this article, while Square, which has not disclosed its EMV plans, did not return a request for comment by deadline.

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