Credit Suisse Upgrades Akamai After Elliott Management Disclosure

The bull versus bear debate surrounding Akamai Technologies, Inc. AKAM has been settled after activist investor Elliott Management disclosed a 6.5-percent stake in the company, according to Credit Suisse. 

The Analyst

Credit Suisse's Brad Zelnick upgraded Akamai's stock rating from Neutral to Outperform with a price target boosted from $55 to $75.

The Thesis

Akamai's content delivery network business — accounting for 29 percent of revenue — has struggled in the past, Zelnick said. (See the analyst's track record here.)

But Akamai has "unparalleled scale with a server no more than one hop away from 85 percent of everything on the public internet," Zelnick said.

The company's products are positioned to grow in specific segments like security and essentially in any sector, as edge computing is "increasingly important as the world is infused with intelligent devices and exponentially increasing data volumes," he said. 

Elliott Management is a notable activist investor with a proven track record of unlocking value, Zelnick said. This prompted the analyst to revise his thesis for Akamai to include the potential for a leveraged buyout, where a buyer would pay $80 per share and achieve a 20-percent internal rate of return over a five-year period, he said.

Akamai could also decide to sell part of its business, but regardless of any M&A deal, the company boasts several opportunities for operational improvement that are more compelling than those of its peers, Zelnick said. 

The analyst's revised $75 price target is based on three valuation scenarios, he said:

• Operational and capital structure improvement. 
• A leveraged buyout. 
• A sum-of-the-parts analysis.

Price Action

Shares of Akamai were trading higher by more than 13 percent Monday morning but are still lower by nearly 2 percent since the start of 2017.

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