On Tuesday, Akamai Technologies shares (NASDAQ:AKAM), a global content delivery network and cloud service provider, had its price target adjusted by DA Davidson. The firm reduced the target from $145.00 to $125.00 but maintained a Buy rating on the stock.
The adjustment follows Akamai's announcement of an agreement to acquire Noname Security, an API security provider based in San Jose, California, for approximately $450 million.
The acquisition, which is valued at around 13 times Noname's annualized revenue of about $35 million, is expected to contribute roughly $20 million in revenue in 2024.
Yet, it is also anticipated to be slightly dilutive to operating margins by about 50 basis points and to earnings per share by approximately $0.10. DA Davidson indicated that they will revise their model once Akamai reports its second-quarter results on May 9, 2024.
This acquisition is a continuation of Akamai's expansion in the API security sector following its purchase of Neosec in the second quarter of 2023. DA Davidson's lowered price target reflects a multiple of approximately 17.5 times the price-to-earnings ratio using projected earnings per share for the calendar year 2025. The firm decided not to update its model ahead of Akamai's upcoming guidance update.
Akamai is set to provide updated guidance when it reports its second-quarter 2024 results this Thursday, May 9. The firm anticipates that reported estimates may experience downward adjustments due to the strong US dollar and the additional foreign exchange headwinds associated with it.
Nevertheless, DA Davidson expects that, excluding the Noname contribution, Akamai's guidance on a constant currency basis may see a modest upward revision, especially regarding Compute growth guidance.
InvestingPro Insights
In light of Akamai Technologies' strategic acquisition of Noname Security and the subsequent price target adjustment by DA Davidson, InvestingPro provides additional insights to inform investors. Akamai's management has demonstrated confidence in the company's trajectory through aggressive share buybacks, a move that often signals strong future prospects.
Moreover, 11 analysts have recently revised their earnings estimates upwards for the upcoming period, reflecting a positive outlook on the company's financial performance.
From a financial standpoint, Akamai's robustness is evident with a market capitalization of $15.53 billion and a P/E ratio standing at 25.48 based on the last twelve months as of Q4 2023. The company's revenue growth remains healthy at 5.4% for the same period, and its gross profit margin is impressive at 60.44%, indicating strong operational efficiency.
While the stock trades at a high P/E ratio relative to near-term earnings growth, with a PEG ratio of 3.53, the company's solid fundamentals may justify the premium.
For investors seeking further insights, InvestingPro offers additional InvestingPro Tips beyond the two mentioned here. There are 6 more tips available that can be accessed through the InvestingPro platform, which can provide a deeper understanding of Akamai's financial health and future prospects. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of professional investment analysis and data.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.