Why Akamai Stock Crushed it on Monday
Key Points
An analyst effected a double upgrade on his Akamai take.
He's now convinced it's a buy, representing a 180-degree shift from his previously bearish view.
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All things being equal, an analyst upgrade (or downgrade) usually helps to move a stock. In the case of a double upgrade -- which is quite rare -- it's hard for investors to ignore the company on the business end of the adjustment.
So it was with Akamai Technologies (NASDAQ: AKAM); largely due to such a move from a prominent white-shoe investment bank, investors piled into the stock on Monday. It closed the day nearly 4% higher in price.
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Doing the double
Akamai, a company concentrating on cybersecurity and cloud computing these days, received that double upgrade from Sanjit Singh of Morgan Stanley. Turning his Akamai recommendation from underweight (sell) to overweight (buy), he bypassed the usual hold mid-level recommendation. He also significantly raised his price target, to $115 per share from $83.
Image source: Getty Images.
Singh now feels the company is notably undervalued, according to reports, not least because it has only posted revenue growth in the mid- to single-digit percentages since the end of the coronavirus pandemic.
Yet this belies the potential Akamai currently holds, considering its pivot from content delivery specialist to its current push into cybersecurity and cloud offerings. He also inferred that the company won't be burdened by its legacy business or overly burdensome costs arising from the pivot in the future.
Wait and see?
To me, Akamai is still associated with said legacy business, and not with the more cutting-edge (and, frankly, promising) segments it's pivoting into.
That said, while I agree that it likely has more potential with those offerings, it has yet to prove that it can grow either revenue or profitability at meaningful rates. Personally, I'd sit on the sidelines with this stock until it appears better poised to do so.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Akamai Technologies. The Motley Fool has a disclosure policy.
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