On Monday, Oppenheimer upgraded Akamai Technologies (NASDAQ: NASDAQ:AKAM) stock, a company specializing in cloud services and content delivery with a market capitalization of $14.12 billion, from Perform to Outperform, setting a price target of $120.00.
According to InvestingPro data, the company maintains a robust financial health score of 2.51 (GOOD), suggesting strong operational fundamentals.
The upgrade comes after a market consolidation in the content delivery network (CDN) sector, which has seen its number of key players decrease from six to three. This shift occurred following the closure of Edgio, a competing CDN provider, which has led to an improvement in both volumes and pricing within the industry.
The analyst from Oppenheimer indicated that the upgrade was influenced by the recent changes in the CDN market dynamics and the acquisition of Edgio's customers by Akamai.
This consolidation is expected to reduce price competition and create a more favorable market environment for Akamai, which has demonstrated solid performance with a 5.92% revenue growth over the last twelve months and a net income of $526 million.
Additionally, Akamai has expanded its offerings to include a robust cloud compute and edge compute platform, which is anticipated to gain from the growing demand for AI inferencing and protection against AI-driven cyberattacks.
According to the analyst, adjustments have been made to Akamai's financial estimates based on new information regarding the customer acquisitions from Edgio.
InvestingPro analysis reveals several key insights, including management's aggressive share buyback program, though the stock currently trades at a relatively high P/E ratio of 27.2x. Subscribers can access 6 additional ProTips and comprehensive valuation metrics through the Pro Research Report.
These revised estimates reflect a more optimistic outlook for the company's future performance. The analyst's price target for Akamai is derived from a valuation of 17 times the projected 2025 earnings per share (EPS), which is slightly below the five-year average multiple of 18 times. The target is also supported by a discounted cash flow (DCF) analysis.
The content delivery network market has experienced significant changes, and with the exit of Edgio, Akamai Technologies is poised to capitalize on the reduced competition. The improved market conditions, along with Akamai's developed cloud and edge computing capabilities, have led to the analyst's positive reassessment of the company's stock.
Akamai's stock has been given a vote of confidence by Oppenheimer, with the firm adjusting its outlook on the company's shares and setting a new price objective. The market will be watching closely to see how Akamai leverages these market shifts and whether it can meet the expectations set by the revised estimates.
Based on InvestingPro's Fair Value analysis, the stock appears slightly undervalued at current levels, potentially offering an attractive entry point for investors seeking exposure to the CDN sector.
In other recent news, Akamai Technologies has seen significant developments. The company won a $125 million bid to acquire contract assets from Edgio, a move approved by the US Bankruptcy Court.
Piper Sandler, maintaining an Overweight rating on Akamai's shares, expects this acquisition to contribute roughly $10 million in the fourth quarter of 2024 and about $90 million in the fiscal year 2025. The firm also predicts an addition to earnings per share (EPS) between $0.15 and $0.20.
Akamai recently reported its first billion-dollar quarter, with total revenue reaching $1.005 billion, a 4% increase year over year. The company's security revenue rose to $519 million, a 14% increase, while compute revenue grew by 28% to $167 million. The company's Q4 revenue projections are expected to be between $995 million and $1.020 billion, with full-year forecasts indicating 4% to 5% growth.
Baird, the financial services firm, adjusted its stock price target for Akamai, maintaining an Outperform rating. The firm highlighted Akamai's security and compute segments, which are expected to continue experiencing double-digit growth.
Despite these developments, Akamai has also announced a workforce reduction of 2.5% as the company transitions its focus towards cybersecurity and cloud computing solutions.
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