Trade Update - Akamai Tech (AKAM)

My trade of the day is Akamai Tech (AKAM). The company reported solid earnings last night, and the stock gapped higher this morning, and remains up on very solid volume.

If you look at the chart above, you can see a large gap lower back in July, the last time the company reported earnings. This time around, I chose to sit on the sidelines until after the company reported earnings to avoid another big disappointment.

But the earnings were solid, beating estimates slightly. And full-year guidance was bumped up a bit. Though not as high as previous quarters, revenue and earnings growth easilty topped +40%. Free cash flow grew +56% yr/yr. And gross margins remain above 80% (wow).

The company remains a leader in the content delivery space, and its services will remain in high demand as more bandwidth-intensive applications migrate on the web (software downloads, video streaming, movie downloads, etc.)

Current EPS estimates for 2008 are $1.66, which puts the stock at a P/E of 22x. That is cheap for a fast growing stock like AKAM, and I think the stock will continue to recover. For what its worth, here are some analyst price targets I saw today:

• $42 - Thomas Weisel
• $45 - Pacific Crest
• $50 - Friedman, Billings
• $58 - Citigroup

If I had to put a price target on it, I would say that the stock can likely get back to a multiple of 35x, which would put my in-line with the Citi analyst ($58). That's a lot of upside, although it will likely take time to get there.

But I remain bullish on the market, and bullish on growth stocks in general (over value). So AKAM fits well into my playbook and goes into the portfolio.

long AKAM