VeriSign - CEO steps down after 12-year run

Stratton Sclavos, Chairman and CEO of VeriSign Inc. (NASDAQ: VRSN) today said he was leaving after 12 years, which for a Silicon Valley-based technology company is the equivalent of a lifetime. VeriSign is trading up a bit following the news. I have known Stratton these past 12 years, having traveled with him on several occasions to visit institutional investors. He is a fine gentleman, and a friend who was as dedicated to his company as any CEO I have ever known and I have known more than 300 CEOs.

VeriSign is the utility of the internet. All .com and .net addresses are registered through VeriSign and all communications ending in .com and .net must pass through the VeriSign data center. VeriSign is also the leader in web site digital certificates. These certificates allow the customer's servers to be secured so that all transaction and sensitive information are encrypted. Key ecommerce vendors from Amazon.com Inc. (NASDAQ: AMZN) to large banks use Verisign's web site digital certificates, which have never been hacked.

The beauty of VeriSign's financial model is that it has high margin products that renewed on an annual basis. The company is emerging as a cash flow juggernaut. It's also the leader in cell-phone communications as the "hand-off" expert from one network to another.

Sclavos is a skilled operator and ably led the company through both the boom and the bust times. He was there for VeriSign's initial public offering in 1996 and kept the investment bankers busy these past 12 years with acquisitions including the Network Solutions purchase in 1999 that secured VeriSign's position as the true utility of the internet.

VeriSign stock is interesting at $27.50. I estimate it will earn $1.10 this year growing to $1.35-1.40 next year. With operating margins headed up to the 22-25% range, VeriSign may look quite tempting for a private equity transaction. With the current market capitalization at $6.5 billion and revenues approaching $1.75 billion, the guns of private equity may be pointing VeriSign's way.

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.