2024-07-30 04:34:51 ET
On Monday, July 29th, Guggenheim analysts upgraded Akamai Technologies (NASDAQ: AKAM) to a Buy from Hold, setting a price target of $128.
This price target suggests a potential upside of over 30% from Akamai’s current trading price of $98.
Guggenheim’s analysts believe Akamai is poised to transform itself from a content delivery network (CDN) company into a broader platform, leveraging its strong CDN position to deliver enhanced security and cloud solutions.
Views of other firms on Wall Street
Akamai’s latest upgrade comes amid a series of mixed analyst opinions. Earlier, this month HSBC upgraded Akamai to Hold from Reduce, citing concerns about the company missing guidance but acknowledging that the current stock price reflects these issues.
HSBC expects Akamai’s non-GAAP EPS to grow at a modest 5.1% CAGR from 2023 to 2027, lagging behind the sector’s low- to mid-double-digit growth rates.
Scotiabank also initiated coverage on Akamai with an Outperform rating and a $110 price target on July 9th, highlighting the company’s robust growth prospects in security and edge computing.
According to Scotiabank, these segments are expected to constitute 75% of Akamai’s business by 2025, driving the company’s future growth.
However, not all analysts are as optimistic. In May, Raymond James maintained its Outperform rating but lowered its price target from $138 to $115, expressing concerns about the performance of Akamai’s delivery business.
The firm’s analysts noted that while security and compute segments showed strong growth, the delivery business faced challenges due to major customers like streaming and social media companies reducing their use of Akamai’s services to cut costs.
Citi Research also downgraded its price target for Akamai from $117 to $110 while maintaining a Neutral rating in May.
Analysts at Citi highlighted the significant pressure on Akamai’s delivery business, which experienced an 11% year-over-year decline in Q1 2024, overshadowing the healthy growth in the security and computing segments.
Q2 earnings preview
Akamai’s Q2 earnings report, expected on August 8th, will be a critical indicator of the company’s performance.
Analysts forecast a GAAP EPS of $0.94, up from $0.85 in Q2 2023, and revenue of $977.60 million, compared to $935.7 million in the same period last year.
However, there have been 19 downward EPS revisions in the last 90 days, reflecting cautious sentiment among analysts.
Akamai has faced recent turbulence, including a nearly 10% drop in share price following weaker-than-expected forward guidance during its Q1 earnings.
For Q2, the company expects earnings (non-GAAP) between $1.51 and $1.56 per share, below analysts’ expectations of $1.63 per share.
Despite these challenges, the security and compute segments of the company continue to grow at 15-17% and 21-23% year-over-year, respectively.
Fundamentally, Akamai’s business shows strength in its diversification strategy, focusing on high-growth areas like security and edge computing.
The acquisition of Noname Security for $450 million aims to enhance Akamai’s API security capabilities, contributing to future revenue growth. Despite setbacks in the delivery segment, the company expects incremental revenue from significant events like the Olympic Games and U.S. elections.
Akamai’s financials remain robust, with Q1 2024 results showing an 8% year-over-year increase in revenue to $986.97 million and a 21% rise in security revenue.
The compute segment also saw a 25% year-over-year increase, reinforcing the company’s strategic shift away from CDN dependence.
From a valuation perspective, Akamai’s trailing cash flow from operations significantly outpaces the sector average, making it an attractive investment despite recent stock volatility. The company’s ongoing share buyback program further underscores its strong cash flow generation capabilities.
As we consider these fundamental strengths, it’s equally important to analyze how these factors are reflected in Akamai’s stock price movements.
By examining the technical indicators and chart patterns, we can gain deeper insights into potential future trends and price targets.
Let’s delve into the technical analysis to explore what the charts reveal about Akamai’s stock trajectory.
Long-term strong resistance above $120
Akamai’s stock hasn’t delivered any price returns to investors since late 2020. On the long-term charts, one can see how $120 has acted as a strong resistance for the stock since October 2020.
It has tried to break above that level multiple times in the last 4 years but failed.
However, the short-term charts do offer some hope to the bulls. Since the start of this month, the stock has witnessed a significant rebound rising from below $90 to above $98 currently. Additionally, both the 50-day and 100-day moving averages have started turning up.
Hence, bullish investors looking to buy the stock can initiate a small position at current levels while keeping a stop loss at the recent swing low at $87.70.
They can add to their long position if the stock gives a weekly closing above $120.
For short-term traders bearish on the stock, shorting opportunities will only emerge if the stock loses its short-term upward momentum.
The first sign of that will be if the stock gives a daily closing below its 100-day moving average, which is currently at $92.41.
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