Wedbush Securities expects VeriSign Inc. (NASDAQ: VRSN) to continue to return capital to investors through 2011. The brokerage maintained its neutral rating on shares of VeriSign with a price target of $38.
The Dulles, Virginia-headquartered VeriSign repurchased 0.6 million shares in February at $34.87, and we believe the company could have been active in repurchasing shares in March given that the average closing share price in March only increased to $35.73, said Kerry Rice, an analyst at Wedbush Securities.
Additionally, the company has indicated that it plans to return about $650 million to shareholders in 2011, which will likely be in the form of share repurchases, but could also be distributed as another special dividend.
Based on Friday’s closing price of $36.48, Rice estimates that VeriSign could repurchase 17-18 million shares. Rice estimates the lower share count could positively impact his fiscal 2011 EPS estimate by about $0.14 and his 2012 EPS estimate by about $0.20.
Rice said March zone file checks suggest VeriSign could report first quarter of 2011 upside given that domain names adds were likely ahead of guidance and his estimate for new .com and .net domain names.
Rice said his checks indicate that VeriSign registered about 3.1 million new .com and .net domain names in first quarter of 2011. This compares favorably to his estimate of 2.5 million new domain names and VeriSign’s guidance of 2.3-2.6 million additions.
While Rice expects a slightly lower renewal rate due to the large number of first-time renewals in first quarter of 2011, he expects net additions should remain above expectations and could result in about $1 million of upside in first quarter of 2011.
Rice said VeriSign achieves a critical milestone by deploying DNS Security Extensions (DNSSEC) to the .com domain to boost online security. VeriSign deployed DNSSEC in the .com domain which should improve the integrity of Internet communications and the security of DNS transactions.
The security extensions will apply digital signatures to DNS data to authenticate the data’s origin and verify its integrity as it moves throughout the Internet. We believe VeriSign’s DNSSEC Signing Service will attract the registrar community by alleviating the administrative burden of providing DNSSEC support for their customers, said Rice.
Rice said VeriSign simplifies the complex process of managing DNSSEC by signing all zone files in a customer's account, continually checking the status of DNSSEC keys to ensure they are valid, and automatically publishing new keys after the existing ones expire, which is the most challenging component of DNSSEC. The roll-out of the .com domain comes after VeriSign’s successful deployment of it in the .net and .edu domains in 2010.
VeriSign stock is trading up 0.69 percent at $36.73 on the NASDAQ Stock Market at 10:36 am EDT.