Information Technology Stocks

Verisign Inc Valuation – August 2016 $VRSN

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.

VRSN Chart

VRSN data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of VRSN – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

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

VRSN value chart August 2016

EPSmg $2.98
MG Growth Estimate 9.10%
MG Value $79.53
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $43.18
MG Value based on 0% Growth $25.31
Market Implied Growth Rate 8.38%
Current Price $75.22
% 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

VRSN charts August 2016

Net Current Asset Value (NCAV) -$11.46
Graham Number $0.00
PEmg 25.26
Current Ratio 1.32
PB Ratio -8.71
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

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
Long-Term Debt $1,236,272,000
Total Assets $2,314,173,000
Intangible Assets $52,527,000
Total Liabilities $3,441,503,000
Shares Outstanding (Diluted Average) 130,588,000

Earnings Per Share History

Next Fiscal Year Estimate $3.38
Dec2015 $2.82
Dec2014 $2.52
Dec2013 $3.49
Dec2012 $1.95
Dec2011 $0.86
Dec2010 $4.64
Dec2009 $1.28
Dec2008 -$1.87
Dec2007 -$0.63
Dec2006 $1.53
Dec2005 $1.63
Dec2004 $0.60
Dec2003 -$1.20
Dec2002 -$20.97
Dec2001 -$65.64
Dec2000 -$19.57
Dec1999 $0.03
Dec1998 -$0.24
Dec1997 -$0.66

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.98
Dec2015 $2.63
Dec2014 $2.58
Dec2013 $2.56
Dec2012 $1.85
Dec2011 $1.49
Dec2010 $1.53
Dec2009 $0.11
Dec2008 -$0.23
Dec2007 $0.52
Dec2006 -$0.49
Dec2005 -$6.71
Dec2004 -$14.37
Dec2003 -$21.73
Dec2002 -$28.42
Dec2001 -$27.17
Dec2000 -$6.65

Recommended Reading:

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

Akamai Technologies Inc Valuation – August 2016 $AKAM
Motorola Solutions Inc Valuation – August 2016 $MSI
F5 Networks Inc Valuation – July 2016 $FFIV
Computer Sciences Corp Valuation – July 2016 $CSC
Infosys Ltd Valuation – July 2016 $INFY
Cognizant Technology Solutions Corp Valuation – July 2016 $CTSH
Total System Services Inc Valuation – May 2016 $TSS
Qualcomm Inc Valuation – February 2016 $QCOM
Motorola Solutions Inc Valuation – February 2016 Update $MSI
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH

Disclaimer:

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top