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On Tuesday, Citi updated its stance on Akamai Technologies (NASDAQ:AKAM), increasing the price target to $115 from the previous $110 while sustaining a Neutral rating on the stock. The adjustment follows Akamai's second-quarter 2024 results, which prompted a minor lift to the current year's estimates and maintained projections for outlying years based on stable exit multiples.
Akamai's shift towards a healthier business mix, with Compute and Security surpassing Delivery's 33% contribution, was noted as a positive development. However, overall revenues remain at mid-single-digit constant currency levels, placing the onus on Compute and Security to perform exceptionally well in transactions, deal sizes, and wallet share growth.
This need is particularly pressing as the negative double-digit Delivery segment continues to seek normalization amidst traffic declines and do-it-yourself pressures. These challenges are somewhat mitigated by gains from large-scale events and a more rational competitive and pricing environment.
Despite the Neutral rating, Citi highlighted encouraging signs in Akamai's Compute division, such as the potential for 'classic' enterprises to contribute over 15% to the segment or approximately $100 million in annual run rate by the end of 2024, growing at twice the year-over-year rate.
Additionally, signals of robust earnings per share and free cash flow outperforming internal operating margin projections are being monitored for consistency. These factors could contribute to a structurally positive shift in the investment narrative and valuation case for Akamai Technologies.
In other recent news, Akamai Technologies reported better than expected second quarter results for 2024, leading to an increase in its overall guidance for revenue, EBITDA, and Non-GAAP EPS for the same year. This positive performance prompted several firms to adjust their outlook on the company.
DA Davidson raised its price target on Akamai Technologies to $120, RBC Capital increased its price target to $100, TD Cowen set its target at $131, and Scotiabank upgraded its target to $115. Guggenheim also showed confidence in the company by upgrading the stock from Neutral to Buy and setting a new price target at $128.
Analysts highlighted the company's successful acquisition of Noname Security, a prominent API security company, for approximately $450 million. The acquisition is expected to enhance Akamai's capabilities in the API security domain. Furthermore, the company's focus on key growth areas like Security and Compute was noted as a positive strategy for navigating slower growth in the Delivery segment.
In terms of analyst ratings, while DA Davidson, TD Cowen, and Guggenheim maintained a Buy rating, RBC Capital and Scotiabank held a Sector Perform and Sector Outperform rating respectively.
However, KeyBanc, despite maintaining an Overweight rating, reduced its price target due to lower-than-expected Delivery segment revenues and foreign exchange headwinds. These developments reflect recent shifts in the company's strategic direction and potential for growth in key business areas.
InvestingPro Insights
As Akamai Technologies (NASDAQ:AKAM) continues to navigate the shifts in its business mix, recent data and insights from InvestingPro provide a deeper financial perspective. The company is currently trading at a P/E ratio of 24.37, which is modest in relation to its near-term earnings growth, suggesting a potentially attractive valuation for investors. This aligns with an InvestingPro Tip that Akamai is trading at a low P/E ratio relative to near-term earnings growth, which could be a signal for value-oriented investors.
Furthermore, Akamai's aggressive share buyback strategy, as noted in an InvestingPro Tip, indicates management's confidence in the company's value proposition. Additionally, the company's recent performance has been strong, with a significant return over the last week of 7.86%. This short-term momentum is complemented by the fact that analysts have revised their earnings upwards for the upcoming period, showing optimism about the company's future performance.
For investors seeking more detailed insights, there are additional InvestingPro Tips available, including analysis on profitability and dividend policies. Akamai has been profitable over the last twelve months, and while it does not pay a dividend, this could reflect a strategic reinvestment of earnings into growth opportunities. With a market capitalization of $15.28 billion and a revenue growth of 7.26% over the last twelve months as of Q2 2024, Akamai is showing a healthy financial trajectory.
For those interested in exploring these metrics further, additional InvestingPro Tips are available, offering a comprehensive analysis of Akamai's financial health and market positioning.
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