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Bull of the Day: Akamai (AKAM)

Jared Levy

The summer of 2013 is expected to be anything but dull. Tensions among investors and market volatility are high as we weigh the effects of QE tapering amidst a world with struggling economies.

Stocks that have global discretionary exposure or unjustifiably high valuations have gotten hit the hardest over the last month or so. 

If economies do weaken and consumers slow their spending habits once again, there are a few areas that could still see strong growth.  In fact, today’s bull of the day might actually benefit from consumers staying home, surfing the web or engaging in more online content.

Think about them as a quasi-defensive growth company; sure they have competition, but they are one of the best at what they do and it seems that investors may be gearing up for the company to make another leg higher as short interest dropped dramatically as of late.

The most recent short interest data has been released by the Nasdaq for the 05/31/2013 settlement date, showed a 6,608,451 share decrease in total short interest from 10,971,242 or 37.59% since 05/15/2013.  This shift happened even as the stock price skyrocketed.

Who are they? Akamai AKAM is more than just a “cloud” company; the company provides the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere.   The proliferation of mobile devices from the likes of Apple AAPL, Samsung, HTC, Google GOOG and more all will add to the need for Akamai’s services.  

If you've ever shopped online, downloaded music, watched a web video or connected to work remotely, you've probably used Akamai's cloud platform. The company’s promise is to ensure the best online experience on any device, anywhere.

Akamai delivers roughly 20% of ALL web traffic globally.

Akamai helps enterprises accelerate innovation in the hyper-connected world by removing the complexities of technology and handling all the “leg work” in getting content from the company to the consumer and beyond.

Their “Intelligent Platform” reaches globally and delivers locally, providing customers with unmatched reliability, security and visibility into their online business.  This platform comprises more than 95,000 servers located across nearly 1,000 networks in 70 countries worldwide and delivers hundreds of billions of internet interactions daily.

The company also tracks and defends against “attack traffic” on the internet, helping us all get the safest bandwidth possible.   Global internet traffic is not only growing in raw content and users, but the speed at which we access that content is also rising rapidly.

Recent Results Most Zack’s Rank #1 stocks have recently experience very positive analyst momentum and Akamai is no exception. 

After the company delivered a 24% beat last quarter (42cents versus the Zacks Consensus for 34 cents), there have been a slew of positive analyst revisions.  The Zacks Consensus for the current and next quarters as well as FY2013 and FY 2014 are all higher than they were just 2 months ago, with none moving their estimates lower.

Akamai is expected to report Q2 results on July 24th and given their Zacks Rank coupled with an earnings ESP of 8.11% in the current quarter, there is a very good chance they will beat the current Zacks Consensus for 37 cents.  ESPs are also positive for the future, which is a good sign for guidance.

AKAM has beat the Zacks Consensus earnings estimates 4 periods in a row, exceeding expectations by an average of 13.7%.

The Charts Since gapping almost 17% above the 200 day moving average on their last earnings report, the stock added another 15%, making a new 52 week high of 48.47 over the last month.

Recently, shares have come down to their post gap price around the $42.50 level, which is just above the 50 day moving average of $42.34.

Shares are in an odd area here; I’d like to see them trading above the $43.07 area, which coincides with a key Fibonacci level.  If the stock breaks down here along with the broad market, look for strong support around $39.50 and even more at the 200 day moving average of $37.81.

The reality is that the intermediate bullish trend is intact, and a buy around these levels wouldn’t be catastrophic, but Akamai’s forward P/E of 26.5 may put it on the temporary chopping block if the broad market corrects.

Look for an initial upside target of $47.25, with another 5% breakout if shares eclipse the 52 week high.

 Akamai is my favorite pick in the cloud space at the moment; Rackspace RAX, a Zacks Rank #5 Strong Sell, doesn’t look nearly as attractive and trades at double the multiple and while Hewlett Packard HPQ (Zacks Rank #3 Hold) is trying to move into the space, they may have a long road ahead and are much less agile and “plugged in” than Akamai.

Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”.  You can discover more of his insights and recommendations through his two portfolio recommendation services:

Zacks Whisper Trader- Learn to buy stocks likely to have robust earnings BEFORE they report.

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