KeyBanc Finds Multiple Reasons To Turn Bullish On Akamai Technologies

KeyBanc downgraded Akamai Technologies, Inc. AKAM from a bullish stance in 2016, but the research firm sees multiple reasons for investors to become constructive on the stock again.

The Analyst

KeyBanc Capital Markets' Brandon Nispel upgraded Akamai Technologies from Sector Weight to Overweight with a new $73 price target.

The Thesis

Akamai, a content delivery network and cloud service provider that handles around 15 to 30 percent of the entire internet, continues to face long-term competitive challenges but multiple near-term readouts makes the stock look attractive at 8.4 times 2019 adjusted EBITDA estimates, Nispel said in a note.

First, global visitors per minute growth accelerated from 19.8 percent in December 2017 to 37.1 percent last December while global visitors per minute rose 28.5 percent in the fourth quarter.

Due to an acceleration in traffic growth in the fourth quarter, the company's content delivery network and Other units could see 3.5 to 4 percent year-over-year growth, the analyst said. This creates the scenario where Akamai could report revenue of $715 million which is above management's own guidance.

The Street's 2019 consensus estimate is reasonable and management could issue revenue guidance of $2.85 billion to $2.92 billion which is consistent with current estimates. The company continues to guide towards a 30 percent non-GAAP operating margin by 2020 which implies the potential for margin expansion in 2019 compared to current estimates.

Akamai's balance sheet shows a lack of leverage and a strong net cash position, which Nispel said are "important qualities" in the volatile market. Given expectations for 6.9 percent revenue growth in 2019, the stock looks attractive as it trades at a discount to its historical average of 9.5 times adjusted EBITDA.

Price Action

Akamai Technologies traded higher Wednesday morning to $63.08 per share.

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