Zoom Stock Scores Upgrade Ahead of Next Week's Earnings

There is still plenty of room for other analysts to follow suit

Digital Content Manager
Aug 27, 2021 at 11:23 AM
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Zoom Video Communications Inc (NASDAQ: ZM) is capturing the attention of at least one brokerage firm ahead of its second-quarter earnings report, which is due out after the close on Monday, Aug. 30. The equity earned an upgrade to "overweight" from Morgan Stanley, as well as a price-target hike to $400 from $360. The analyst said Zoom is likely to beat growth estimates over the next 12 months, and that international business will continue to outperform. Additionally, the firm cited enterprise momentum, combined with dissipating margin headwinds. At last check, ZM is up 0.6% to trade at $342.55.

The security has had a mixed history of post-earnings reactions, finishing four of its past eight next-day sessions higher, while four were lower. However, the company did post a 40.8% pop in September 2020. This time around, options traders are pricing in a 10.4% next-day swing for the equity, which is slightly smaller than the 12.2% move ZM averaged over the past two years, regardless of direction. 

The brokerage bunch was cautious towards ZM coming into today. Of the 19 analysts in coverage, 11 gave it a tepid "hold" rating, while eight said "buy" or better. In other words, there is still plenty of room for upgrades going forward, which would push the security higher.

Meanwhile, the options pits are firmly in the bullish camp. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ZM's 50-day call/put volume ratio of 2.84 stands higher than 98% of readings from the past year. This means long calls have been getting picked up at a much quicker-than-usual clip.

This year has been a volatile one for Zoom stock. The $410 level has been rejecting rally attempts since early July. More recently, the $330 level has emerged as a floor for the shares, while the 20-day moving average remains as another level of resistance so far. Year-over-year, ZM is up 15.8%.

Lastly, the security's Schaeffer's Volatility Scorecard (SVS) reads at a high 84 out of 100, meaning the stock has exceeded option traders' volatility expectations during the past year -- a good thing for buyers.

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