Foolish Forecast: Reining In VeriSign?

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Wednesday night is earnings night in Mountain View, Calif. No, it's not Google (Nasdaq: GOOG) -- those guys underwhelmed the Street a couple of weeks ago. It's next-door neighbor VeriSign (Nasdaq: VRSN).

What Fools say:
Here's how VeriSign's Motley Fool CAPS rating stacks up against some of its peers and competitors:

	Market Cap (billions)	Trailing P/E Ratio	CAPS Rating
Microsoft (Nasdaq: MSFT)	$237.2	13.9	***
International Business Machines (NYSE: IBM)	$172.8	15.7	***
EMC (NYSE: EMC)	$30.4	19.0	*****
Symantec (Nasdaq: SYMC)	$18.3	34.3	**
VeriSign	$6.4	N/A	**

Data taken from Motley Fool CAPS and Yahoo! Finance on Aug. 5, 2008. NA = not available.

As far as online security certificates go, VeriSign remains the business to beat. "The undisputed leader in the area is going to maintain the lead," says CAPS player anuragash.

But CAPS All-Star kdewalt has management concerns: "Everyone I know who has worked with [VeriSign] or for [VeriSign] has complained about the lack of leadership and vision."

What management does:
The last couple of quarters have certainly failed to impress anybody. The biggest win is an improving free cash flow margin, but net earnings have collapsed. A $182 million goodwill impairment six months ago didn't help any, as VeriSign got rid of one of its three reportable segments.

Margins	12/06	3/07	6/07	9/07	12/07	3/08
Gross	63.2%	63.6%	62.8%	61.8%	60.1%	60.3%
Operating	6.6%	6.1%	5.0%	5.4%	4.7%	7.0%
Net	24.2%	27.9%	2.9%	3.2%	(9.3%)	(14.4%)
FCF/Revenue	17.3%	15.0%	16.2%	16.8%	21.3%	22.2%

Growth (YOY)	12/06	3/07	6/07	9/07	12/07	3/08
Revenue	(2.6%)	(4.6%)	(3.3%)	(4.5%)	(4.3%)	0.0%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Reorganizing around the core businesses of online security and Internet name services is a bold move, because the discarded communications services stood for about one-third of the company's revenue last year. It's still too early to tell whether it's the right move. VeriSign no longer holds a monopoly over those naming rights, as evidenced by the rise of Go Daddy over the past couple of years. The security business faces brand-name competition on all sides.

All those misgivings aside, VeriSign's stock has outperformed the S&P 500 benchmark over the last year by a solid margin of 24 percentage points, and is up 88% in two years. It's almost a pity to see the stock running away like that, because VeriSign could be an acquisition target at a cheaper price.

So what does all of this mean for tomorrow's report? I'm sort of hoping for a big miss based on the usual excuses -- weak economy, hesitant corporate spending -- so set up for a cheap buy-in and a nice rebound or buyout play. But this Fool wouldn't touch VeriSign at today's prices.