VeriSign, Inc. (NASDAQ:VRSN) last week reported its latest first-quarter results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. It looks like a credible result overall - although revenues of US$313m were what the analysts expected, VeriSign surprised by delivering a (statutory) profit of US$2.86 per share, an impressive 131% above what was forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Following last week's earnings report, VeriSign's three analysts are forecasting 2020 revenues to be US$1.26b, approximately in line with the last 12 months. Statutory per share are forecast to be US$6.63, approximately in line with the last 12 months. In the lead-up to this report, the analysts had been modelling revenues of US$1.25b and earnings per share (EPS) of US$5.30 in 2020. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the sizeable expansion in earnings per share expectations following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 5.9% to US$222. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on VeriSign, with the most bullish analyst valuing it at US$250 and the most bearish at US$154 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the VeriSign's past performance and to peers in the same industry. We would highlight that VeriSign's revenue growth is expected to slow, with forecast 1.8% increase next year well below the historical 3.8%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 9.7% next year. Factoring in the forecast slowdown in growth, it seems obvious that VeriSign is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards VeriSign following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on VeriSign. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple VeriSign analysts - going out to 2021, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 3 warning signs for VeriSign (1 can't be ignored!) that you need to be mindful of.
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