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VeriFone Is Doing Everything Right and Paying Its Investors Well

NEW YORK (TheStreet) -- Prior to Wednesday's trading session, shares of VeriFone (PAY - Get Report) were already already up more than 26% year to date at $33.96. Some investors were ready to pack their tents and move on to the next great idea. But I saw it a different way.

The stock closed Thursday at $33.82, down 0.09% and is still up 26% on the year. With the shares now up more than 125% from the 52-week low of $15.34, the stock is not the compelling buy that it was three months ago. But I'm going to maintain my $40 target for the next 12 to 18 months, which still represents 20% upside from current levels.

Although the company was battling a mobile shift in the payment technology industry, I had seen enough from new management to believe that the stock could still pay investors an additional 20% return, reaching $40 per share. The idea was considered too aggressive.

But Thursday, after market close, VeriFone reported second-quarter financial results that suggests my price target may actually be too conservative. With a narrower-than-expected loss and a beat on revenue, my aggressive price target is now matched by the degree to which management is returning value to shareholders.

With retailers reporting weaker traffic due to inclement weather, there were concerns that VeriFone, which collect fees per transaction, was going to have a hard time meeting its numbers. That was only partly true.

VeriFone delivered revenue of $466.4 million, climbing 9% year over year. That was good enough to beat analysts' expectations of $443.4 by more than 5%.

It's true retailers did complain about soft traffic and weak same-store sales. But they were equally spooked by the data breach that affected 70 million Target (TGT) customers.

To that end, VeriFone benefited from a rush among retailers in both the U.S. and abroad, seeking to upgrade its point-of-sale/cash register equipment that can read credit/debit cards with secure chip technology. This is the type of secure technology standardized by Visa (V) and MasterCard (MA).

It wasn't just the stroke of Target's bad luck, however. VeriFone management has worked diligently to bring efficiency to the operation. With net loss narrowing to $23.9 million, or 22 cents per share, these efforts are beginning to pay off. This represents a 60% year-over-year improvement.

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