VeriSign Beats Earnings Forecast


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VeriSign Inc. ( VRSN ) marched into the earnings limelight after the close on Thursday to reveal that it booked a huge gain on the sale of its authentication business. The company has shed more than a dozen businesses and thinned its employee ranks in recent years, and its narrowed focus has made it more dependent on its mainstay Internet domain operation.

As a result of the sale, the company posted a quarterly profit of $784.9 million, or $4.48 a share, up from $53.6 million, or 28 cents a share, a year earlier. Excluding the sale and other items, per-share earnings rose to 27 cents from 16 cents as revenue increased 10% to $172.6 million. Analysts had predicted a profit of 26 cents a share on revenue of $172 million.

The shares of VeriSign initially gapped more than 4% lower this morning, but quickly recovered and were most recently in positive territory. In fact, VRSN is up more than 37% since the beginning of the year. The security remains above key support at its rising 10-week and 20-week moving averages, which have guided the shares higher since July 2009.

Heading into the earnings announcement, options players jumped on the stock's puts in an attempt to call a pullback in the shares. The International Securities Exchange (ISE) has reported 7.3 puts purchased to open for every one call purchased to open during the past 52 weeks. This ratio of puts to calls is higher than 92% of all those taken during the past 12 months.

In addition, the Schaeffer's put/call open interest ratio (SOIR) for VRSN comes in at 0.84, as put open interest nearly equals call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 85% of all those taken during the past year. In other words, short-term options speculators have been more pessimistically aligned toward the shares only 15% of the time during the past 52 weeks.

Meanwhile, short sellers are buying back their bearish bets. During the past month, the number of VRSN shares sold short dropped by nearly 19%. However, nearly 12 million shares remain sold short, accounting for 7.2% of the company's total float. A continued unwinding of these pessimistic positions could help to propel the shares higher.

Looking in on Wall Street, we find that VRSN has earned nine "strong buys," two "buys," and six "holds." There is still some room for potential upgrades following the company's stronger-than-expected earnings report.


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This article appears in: Investing Options
Referenced Stocks: VRSN

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