Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Verisign Inc (VRSN) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): VeriSign, Inc. is a provider of domain name registry services and Internet security, enabling Internet navigation for domain names and providing protection for Websites and enterprises around the world (Registry Services). The Company operates in Registry Services and Security Services segment. Its product suite also includes Security Services consisting of Distributed Denial of Service (DDoS) Protection Services, Verisign iDefense Security Intelligence Services (iDefense) and Managed Domain Name System (Managed DNS) Services. The Company’s Registry Services provides the security and resiliency of Internet infrastructure and services, including the .com and .net domains, approximately two of the Internet’s root servers, and operation of the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). The Company has operations inside, as well as outside the United States. Its operations infrastructure consists of approximately three secure data centers.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$7,457,687,548||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.32||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-814.75%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||25.26||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||-8.71||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.32||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||2.64||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||9.10%|
|MG Value based on 3% Growth||$43.18|
|MG Value based on 0% Growth||$25.31|
|Market Implied Growth Rate||8.38%|
|% of Intrinsic Value||94.58%|
Verisign, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.85 in 2012 to an estimated $2.98 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 8.38% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Verisign, Inc. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 25.26, which was below the industry average of 35.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.46.
Verisign, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$11.46|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||6/1/2016|
|Total Current Assets||$1,944,655,000|
|Total Current Liabilities||$1,476,125,000|
|Shares Outstanding (Diluted Average)||130,588,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.38|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.98|
Other ModernGraham posts about the company
|Verisign Inc. Analysis – 2015 Update $VRSN|
|20 Companies in the Research Spotlight This Week – June 7, 2014|
|Verisign Inc. Annual Valuation – 2014 $VRSN|
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.