Credit Suisse Downgrades Akamai, Projects 'Forthcoming Headwinds'

Akamai Technologies, Inc. (NASDAQ: AKAM) shares have rallied strongly since the Dec. 15 disclosure made by activist investor Elliott Management. The run-up has made a Credit Suisse analyst wary of building positions in the cloud company.

The Analyst

Analyst Brad Zelnick downgraded Akamai from Outperform to Neutral and lowered the price target from $88 to $84.

The Thesis

The recent value creation initiatives undertaken by Akamai at the behest of Elliott — and the company's opportunities in enterprise security and edge computing — are commendable, Zelnick said in a Monday note. (See the analyst's track record here.)

Yet the analyst said he believes "forthcoming headwinds may overshadow longer-term upside potential and challenge investors' confidence near-term."

Credit Suisse's previous upgrade was based on a potential upward revision to Street estimates, prodded by top-line stabilization, self-help and shareholder-friendly capital allocation, and multiple expansion, Zelnick said.

The 2019 EPS estimate for Akamai has been revised higher by 25 percent since December on the basis of higher operating margin targets and incremental share repurchases, the analyst said.

Although the analyst sees scope for further revision, he said much of the potential upside is accounted for and expectations for further organic top-line acceleration into 2019 seem ambitious.

"While we have been constructive on Akamai's strategic potential in an Edge-focused world, we believe meaningful traction could take years to materialize."

Aasset-light disruptors such as Cloudflare and Fastly are gaining an edge over the more distributed, capital-intensive Akamai, Zelnick said.

"We thus consider the risk-reward skew to be increasingly balanced and step aside."

The Price Action

Akamai shares have gained 12.2 percent in the year-to-date.

At the time of writing, the shares were slipping 2.53 percent to $72.77 .

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Photo courtesy of Akamai.

Latest Ratings for AKAM

Aug 2018	Credit Suisse	Downgrades	Outperform	Neutral
Aug 2018	Deutsche Bank	Downgrades	Buy	Hold
Jul 2018	B. Riley FBR	Maintains	Buy	Buy

View More Analyst Ratings for AKAM
View the Latest Analyst Ratings

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