Shares of Akamai (AKAM) are under pressure after Deutsche Bank analyst Vijay Bhagavath downgraded the stock to Sell and called for 20% downside to current share levels, citing a combination of cyclical and secular headwinds in its media delivery, web performance, cloud and enterprise security businesses. Back in January, a peer at Morgan Stanley had upgraded Akamai to Overweight on increased confidence in durable high single digit revenue growth and margins improving.
SELL AKAMAI: In a research note to investors this morning, Deutsche Bank's Bhagavath downgraded Akamai Technologies to Sell from Hold, lowered his price target on the shares to $58 from $64, and called it his Large Cap Sell Idea. The analyst cited a combination of cyclical and secular headwinds in Akamai's media delivery, web performance, cloud and enterprise security business, alongside a lack of meaningful bottom line catalysts near-term. Further, Bhagavath called for about 20% underperformance to current share levels. While he anticipates "little risk" to March quarter expectations, the analyst sees a setup for an "in line to light" top line outlook for Akamai's June quarter. His caution is based on "tough" year over year comps, potential for Video Streaming and Gaming Traffic market share loss to peers in the U.S., intensifying price competition in the media delivery and web performance business, and no major live event - outside of World Cup Cricket starting in May - likely to drive peak video traffic volumes near-term. Additionally, Bhagavath called for downward revisions to 2019-plus consensus expectations on Operating Margin and earnings per share, based on his view of increasing level of R&D and Sales & Marketing spending that would be required to scale up the Edge Cloud, Internet of Things, and Enterprise Security business, etc., coupled with higher opex levels driven by ongoing M&A.
BUY AKAMAI: Earlier this year, Morgan Stanley analyst Keith Weiss upgraded Akamai to Overweight from Equal Weight, citing his increased confidence in durable high single digit revenue growth and margins improving, coupled with "attractive" valuation levels. The analyst told investors that stabilization in Media, continued rapid growth in Security and a "sticky customer base" in Web Performance can all drive durable double-digit operating income growth, which does not look priced in. While he lowered his price target on Akamai's shares to $79 from $82, the analyst pointed out that he believes the company's security boost is "underappreciated" at current share levels.
PRICE ACTION: In morning trading, shares of Akamai have dropped over 4% to $68.36.