On Monday, Citi adjusted its price target for VeriSign (NASDAQ:VRSN), a global provider of domain name registry services and internet infrastructure, to $236 from the previous $237 while sustaining a Buy rating on the stock. The modification comes as a response to the latest data indicating a decline in the company's domain name base in the first quarter of 2024.
VeriSign's domain name base experienced a reduction of 274,000 registrations in the first quarter, with a notable decrease of 246,000 .com domains in March alone. This decline was attributed to a softening of trends in March, following relatively stable patterns observed through the initial two-thirds of the quarter.
Despite the downward adjustment in VeriSign's first-quarter estimates and the target price, Citi remains optimistic about the company's long-term prospects. The firm believes that the current dip in .com domain registrations is a mean reversion rather than a structural change in VeriSign's or the .com market's competitive standing.
Furthermore, Citi highlighted that VeriSign's shares are trading at a 28-30% discount compared to its five-year averages based on enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and price to earnings (PE) ratios. This valuation gap is seen as an attractive opportunity for long-term investment, despite the immediate challenges faced by the .com domain segment.
InvestingPro Insights
As Citi maintains a positive outlook on VeriSign, it's worth noting that recent data from InvestingPro aligns with this perspective. VeriSign's impressive gross profit margins, as indicated by a gross profit margin of 86.79% for the last twelve months as of Q1 2023, suggest a strong ability to manage costs and maintain profitability. Additionally, the company's management has been actively buying back shares, which can often signal confidence in the company's future performance and an attempt to increase shareholder value.
InvestingPro Data further reveals that VeriSign is trading at a low P/E ratio relative to near-term earnings growth, with a P/E ratio (adjusted) of 23.37. This could indicate that the stock is undervalued, especially when considering the company's stable earnings. Furthermore, VeriSign's stock generally trades with low price volatility, which might appeal to investors looking for stable returns.
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