AKAM Stock Study (7-2-24)

I recently did a stock study on Akamai Technologies, Inc. (AKAM) with a closing price of $89.53. The previous study is here.

M* writes:

     > Akamai operates a content delivery network, or CDN, which entails
     > locating servers at the edges of networks so its customers, which
     > store content on Akamai servers, can reach their own customers
     > faster, more securely, and with better quality. Akamai has over
     > 325,000 servers distributed over 4,100 points of presence in more
     > than 1,000 cities worldwide. The firm also offers security and
     > cloud computing for its customers, and those businesses have
     > grown to be bigger than the legacy CDN.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 7.7% and 11.2%, respectively. While sales have been up and straight, EPS declines in ’15, ’17, and ’22 somewhat dent the “up, straight, and parallel” appearance we all like to see.

Over the past decade, PTPM leads peers and trails the industry as it trends down from 24.4% (’14) to 17.1% (’23) with a last-5-year mean of 18.8%. ROE leads peers and trails the industry while ranging from 6.5% in ’17 to 13.8% in ’21 with a last-5-year mean of 13.0%. Debt-to-Capital is lower than peer and industry averages despite trending higher from 0% (’14) to 49.7% (’23) with a last-5-year mean of 42.4%.

Quick Ratio is 2.9 and Interest Coverage is 33.7. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 4.7% and 7.4% for ’24 and ’25, respectively (based on 22 analysts).
• Zacks projects YOY 4.6% and 7.5% for ’24 and ’25, respectively (7 analysts).
• Value Line projects 3.4% annualized growth from ’23-’28.
• CFRA projects 4.5% YOY and 6.5% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year ACE of 6.6% per year along with a 5-year annualized projection of 8.0% (analyst note).

I am forecasting near the bottom of the range at 4.0%.

With regard to EPS growth:

• MarketWatch projects 9.7% and 9.2% per year for ’23-’25 and ’23-’26, respectively (based on 24 analysts).
• Nasdaq.com projects 3.1% YOY and 5.3% per year for ’25 and ’24-’26 (8, 8, and 3 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 7.8%.
• YF projects YOY 1.8% and 7.1% for ’24 and ’25, respectively, along with 5-year annualized growth of 6.6% (21).
• Zacks projects YOY 1.5% contraction for ’24 and 6.6% growth for ’25 along with 5-year annualized growth of 4.8% (8).
• Value Line projects 7.5% annualized growth from ’23-’28.
• CFRA projects growth of 2.9% YOY and 6.0% per year for ’24 and ’23-’25 along with a 3-year CAGR of 7.0%.
• M* projects long-term annualized growth of 12.1%.

My 5.0% forecast is near the bottom of the 5-long-term-estimate range (mean 7.8% per year). Initial value is ’23 EPS of $3.52 rather than 2024 Q1 EPS of $4.02/share (annualized).

My Forecast High P/E is 30.0. Over the past decade, high P/E ranges from 31.8 in ’21 to 56.9 in ’17 with a last-5-year mean of 34.3 and a last-5-year-mean average P/E of 28.1. I am forecasting below the high P/E range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 19.7 in ’19 to 35.4 in ’17 with a last-5-year mean of 21.8. I am forecasting near the bottom of the range (only ’19 is less).

My Low Stock Price Forecast (LSPF) of $70.40 is default based on initial value given above. This is 21.4% less than the previous closing price, 19.6% less than the 52-week low, and 0.4% less than the 2023 low.

These inputs land AKAM in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 4.6%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 27 studies (my study and 7 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.8%, 6.7%, 32.8, and 21.8, respectively. I am lower across the board. Value Line’s projected average annual P/E of 34.0 is greater than MS (27.3) and greater than mine (25.0).

MS high / low EPS are $5.25 / $3.53 versus my $4.49 / $3.52 (per share). My high EPS is less due to a lower growth rate. Value Line is in the middle at $5.05/share.

MS LSPF of $77.00 implies a Forecast Low P/E of 21.8: a perfect match. MS LSPF is 9.4% greater than mine resulting in more aggressive zoning.

With regard to valuation, PEG is 3.0 and 4.2 per Zacks and my projected P/E: both substantially overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is a bit low at 0.8.

MOS in this study is robust despite a small MS sample size for comparison. Not only is my TAR (over 15.0% preferred) much less than MS 13.2%, my forecast growth rates and P/E range are near or below analyst estimate ranges.

U/D has AKAM a BUY under $86/share. The stock needs to approach $68 in order to meet the BI TAR criterion given a forecast high price ~$135.