VeriSign, Inc

Valuations are not great for VeriSign, Inc. (VRSN - Analyst Report). But, if the earnings keep pushing higher it should lead to more gains for this Zacks #1 Rank (Strong Buy).

Company Description

VeriSign provides Internet infrastructure services including domain registry, back-end systems, and network intelligence and availability.

14% Revenue Growth

On Oct 27 VeriSign posted third-quarter results that showed a 14% improvement in revenues. Efficiency also improved, with the operating margin widening 1,040 basis points, to 45.2%.

Net income came in at $59 million and after minor adjustments that works out to $0.37 per share. Analysts polled by Zacks were expecting $0.33, giving VeriSign back to back earnings surprises.

Throughout the quarter VeriSign soaked up almost 8 million shares of common stock and still has well over $1.2 billion in cash and securities.

Estimates Still Rising

The Zacks Consensus Estimate for this year was up 4 cents on the earnings surprise, but rose another 2 cents in the past week and now sits at $1.33. Next year's average forecast is up 6 cents, to $1.69.

In 2010 VeriSign earned $0.86, so the projected earnings growth for this year is 54% with another 28% in 2012.

Valuations Mixed

The stock is going for about 20 times next year's estimates, which puts the PEG ratio at 1.4. Those metrics are not showing a value, but not much of a premium either.

On the flip side, the price to sales nearing 7 times is about twice the industry average.

The Chart

While the valuations are the most attractive, as long as estimates keep moving higher we should see that momentum carry over into the share price. You can see below that the MACD is on the verge of a buy signal after as strong week for VRSN.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service

Read the full analyst report on VRSN