Is FirstEnergy A Better Pick Than Verisign Stock?

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VRSN: Verisign logo
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Verisign

We believe FirstEnergy stock (NYSE: FE), an Ohio-based electric utility company, is a better pick than Verisign stock (NASDAQ: VRSN), given its better prospects. Although these companies are from different sectors, we compare them because they have a similar market capitalization of around $20 billion, and both are part of the broader S&P500 index. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.

Interestingly, VRSN stock has had a Sharpe Ratio of 0.6 since early 2017, higher than 0.1 for FE stock and aligning with the 0.6 figure for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Looking at stock returns, both have underperformed vis-à-vis broader markets amid slowing economic growth. While VRSN is down 2% this year, FE is down 16%, and the S&P500 index is up 11%. There is more to the comparison, and in the sections below, we discuss why we believe FE will offer better returns than VRSN in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Verisign vs. FirstEnergyWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. Verisign’s Revenue Growth Is Better

  • Verisign’s top-line expansion has fared slightly better, with its revenue rising at a 5.0% average annual rate in the last three years compared to 4.3% for FirstEnergy.
  • Verisign’s revenues rose from $1.2 billion in 2019 to $1.4 billion in 2022, driven by higher demand for domain names.
  • The company benefited from increased demand for domain names during the pandemic as more businesses expanded their presence online.
  • Price increases have also bolstered the company’s top-line growth, and this trend is expected to continue in the near term.
  • Higher regulated distribution and transmission revenue have driven FirstEnergy’s top-line growth.
  • FirstEnergy and other transmission companies should benefit from an overall pickup in demand for electric vehicles and appliances.
  • Looking at the last twelve month period, FirstEnergy’s 11.2% top-line growth fares better than 6.5% for Verisign.
  • Our Verisign Revenue Comparison and FirstEnergy Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, sales for both companies are expected to rise at a low single-digit average annual rate for the next three years.

2. Verisign Is More Profitable 

  • Verisign’s operating margin decreased slightly from 69% in 2019 to 67% in 2022, while FirstEnergy’s operating margin contracted from 10.1% to 8.2% over this period.
  • Looking at the last twelve-month period, Verisign’s operating margin of 68.8% fares far better than 9.7% for FirstEnergy.
  • Our Verisign Operating Income Comparison and FirstEnergy Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Verisign fares much better. Its 9% debt as a percentage of equity is much lower than 119% for FirstEnergy, while its 56% cash as a percentage of assets is higher than <1% for the latter, implying that Verisign has a better debt position and more cash cushion.
  • The high debt-to-equity figure for FirstEnergy can be attributed to its debt of around $22 billion, which is higher than its market capitalization of $20 billion.

3. The Net of It All

  • We see that Verisign has seen superior revenue growth, is more profitable, and has a better financial position.
  • However, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe FirstEnergy is the better choice of the two.
  • If we compare the current valuation multiples to the historical averages, FE fares better. VRSN is trading at 14x revenues vs. the last five-year average of 17x. In contrast, FE stock trades at 1.6x revenues vs. the last five-year average of 2.1x.
  • Our Verisign (VRSN) Valuation Ratios Comparison and FirstEnergy (FE) Valuation Ratios Comparison dashboards have more details.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 20% for FE over this period vs. a 12% expected return for VRSN, based on Trefis Machine Learning analysis – Verisign vs. FirstEnergy – which also provides more details on how we arrive at these numbers.

While FE may outperform VRSN in the next three years, it is helpful to see how Verisign’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Sep 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 VRSN Return -4% -2% 164%
 FE Return -2% -16% 14%
 S&P 500 Return -5% 11% 91%
 Trefis Reinforced Value Portfolio -7% 23% 531%

[1] Month-to-date and year-to-date as of 9/28/2023
[2] Cumulative total returns since the end of 2016

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