This domain provider’s shares were recently upgraded by Baird to ‘Outperform’.
VeriSign, Inc. (VRSN)
From Cabot Top Ten Trader
VeriSign, Inc. (VRSN) is a critical internet infrastructure player, given it is the sole authorized registry for many domains, including the .com and .net top-level domains, which account for around 43% of all registered domains globally! VeriSign also operates two of the world’s 13 root servers that are responsible for directing internet traffic, and it provides security solutions that keep websites up and running.
It’s a stable, high-margin (after tax profit margins of 49% last quarter!) business, in large part due to multi-year contracts with ICANN, the U.S. Dept. of Commerce’s (DOC) group that rules the internet. The stock is doing well because VeriSign just amended its agreement with the DOC to permit up to 7% price increases in .com domain names in each of the last four years of its new six-year agreement. This follows a price freeze that’s lasted for six years, and it represents a big win for VeriSign as it will directly boost top-line growth after the two-year price freeze window closes.
We would also expect either a jump in EPS or more investment in growth-generating initiatives. Analysts have been looking for 5% revenue growth in 2019 and EPS growth of 12% (to $5.23). With the price hike it’s now fair to expect upper single-digit growth in 2020 and beyond, which, along with its predictability, should keep big investors interested.
VRSN’s long-term trend is up though it is susceptible to decent-sized corrections every here and there. The most recent one, which pulled the stock down from 164 to 135 due to the market’s plunge, was cut short by news of the price hike. That news sent VRSN back up to its 52-week high near 165 on Friday (it traded well above that level intra-day). Given that the stock tends to be relatively stable on the way up—it has been above its 50-day line for most of the last two years—it could be a steady leader of the next uptrend. If you want in, today’s dip provides an opportunity.
Buy range: 157 - 162
Loss limit: 145 - 149
Michael Cintolo, Cabot Top Ten Trader, www.cabotwealth.com, 978-745-5532, November 5, 2018