Upgrades Keep Rolling In for Surging Akamai Stock

AKAM's short-term options are attractively priced

Managing Editor
Mar 15, 2018 at 9:59 AM
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Akamai Technologies, Inc. (NASDAQ:AKAM) stock has been on a tear lately, and shows no signs of stopping. This morning, KeyBanc upgraded the cloud services specialist to "sector weight" from "underweight." The analyst in coverage waxed optimistic on the company's margin expansion abilities and backing by activist investor Elliott Management. As a result, AKAM stock is currently up 2.3% to trade at $74.91.

Akamai stock has now received three upgrades since announcing a round of Elliott-backed shareholder value initiatives last week, which sent the shares to a two-year high of $78.28 on Friday. However, there are still some analysts on the sidelines. Of the 18 brokerages covering AKAM, 10 rate it a "hold" or worse. Furthermore, the equity's average 12-month price target of $74.67 sits at a slight discount to its current perch. This indicates there is still more room for upgrades and price-target hikes on the surging tech stock.

Akamai stock has been climbing since August, gapping higher after Elliott Management's stake announcement in mid-December. The equity has maintained momentum into 2018, adding nearly 15% so far this year.

It's no surprise, then, that options traders have displayed heightened bullish tendencies of late. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 10.11, which ranks 5 percentage points from a 52-week high. 

However, despite the appetite for calls, AKAM has a 30-day implied volatility (IV) skew of 37.2%, ranking in the 94th annual percentile. This means volatility expectations priced into call options are actually much lower than normal when compared to puts.

Regardless of direction, the good news for premium buyers is that AKAM's Schaeffer's Volatility Index (SVI) of 26% ranks in the 14th annual percentile. In other words, relatively low volatility expectations are being priced into short-term contracts. Furthermore, the equity's Schaeffer's Volatility Scorecard (SVS) stands at 86 out of 100. This indicates that the options market has consistently underpriced the shares' ability to make big moves during the past 12 months.


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