Analysts Converge on Dropbox Stock After Blackout Period Ends

DBX options traders are bracing for short-term headwinds

Apr 17, 2018 at 12:01 PM
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Dropbox Inc. (NASDAQ:DBX) has received an onslaught of analyst attention today, after the research blackout period for underwriters of the Wall Street newcomer expired. Deutsche Bank joined Canaccord Genuity in starting coverage with a "buy" rating, while the brokerage firms set price targets of $36 and $35, respectively. The latter said it believes the company "could become one of the leading Next Generations Work Systems companies," and tap into the "$30B+ annual opportunity" in cloud storage and collaboration apps.

And while KeyBanc echoed this upbeat outlook with its "overweight" rating and lofty $40 target -- a more than 39% premium to current trading levels -- Jefferies and RBC took a more tepid approach. These brokerages initiated coverage with the equivalent of a "hold" rating, and respective price targets of $31 and $33.

Looking elsewhere, speculative players have shown a preference for bearish bets over bullish in the early innings of DBX options trading (which started on March 29). Over the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 6,338 puts and 3,854 calls have been bought to open, resulting in a top-heavy 10-day put/call volume ratio of 1.64.

Most of this activity has centered at the weekly 5/25 30-strike put, which was likely bought to open last Friday for a volume-weighted average price (VWAP) of price of $3.06. If this is the case, breakeven for the put buyers at the close on Friday, May 25, is $26.94 (strike less VWAP) -- a record low for the shares.

Given that DBX stock is trading well above its March 23 initial public offering price (IPO) of $21, some of the put buying could be at the hands of shareholders initiating an options hedge against any additional downside risk. Since topping out at an all-time peak of $34.83, Dropbox shares have shed 16.5% to trade at $29.10.

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