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Bear Of The Day: Akamai Tech (AKAM)

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Akamai Technologies (AKAM) has beaten the Zacks Consensus Estimate in each of the last two quarters and five of the previous six. Today is it is the Bear of the Day because earnings estimates continue to trend lower.

Description

Akamai Technologies provides cloud services for delivering, optimizing, and securing content and business applications over the Internet The company was founded in 1998 and is headquartered in Cambridge, Massachusetts.

Most Recent Quarter

The most recent quarterly report came on February 7, 2017, and it saw the company top the Zacks Consensus Estimate by $0.02 for a 3.7% positive earnings surprise. Revenue came in at $616M, which was $11M ahead of expectations and good for a 1.73% positive revenue surprise.

The stock fell 8.8% in the session following the release as some lofty expectations had been placed on the stock prior to the report. The previous quarter as also a small beat of 3 cents on bottom and $11M on top, but that helped propel the stock higher by 15% in the session following the report.

Estimates

Here is the reason for this stock, that normally beats the number, to be the Bear of the Day. The Zacks Consensus Estimate for 2017 has slid from $2.48 in June 2016 to $2.31 in October and recently slipped to $2.20 in March. That is not what investors want to see.

The 2018 Zacks Consensus Estimate has also seen estimates trimmed, as they moved from $3.37 to $2.76 to $2.53 over the same time horizon.

When estimates fall by 20% over several months, the PE must expand for the stock to hold its current price. That is exactly what has been happening for AKAM.

Valuation

AKAM now trades at 29x forward earnings and that is well above the 24x industry average. The other metrics we tend to look at (price to book and price to sales) show the stock trading at a small discount.

Revenue growth is projected to be in line with the industry average for this year as well as next, but earnings growth is projected to be well below the industry average.

Next Report

The next time AKAM reports will be sometime in late April. Given the recent big reactions following earnings reports, using an options straddle strategy might give investors the best results.

Dating back to the September 2015 quarter, here are the stock price movements following earnings: -16.5%, 17%, 7% -12.7%, 15%, -8.8%. Clearly, this stock bounces around quite a bit, and it might be a bit too much to ask for the average investors to guess which way it might go given that it has such a good history of beating the number.

If this stock continues to hold its price, then many will say that it is "priced for perfection" and that alone could be a big red flag. At the same time, a big beat could send shares soaring in order to correct the multiple that it presently sports.

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

Akamai Technologies, Inc. Price, Consensus and EPS Surprise | Akamai Technologies, Inc. Quote

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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