“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, May 01, 2017

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.


Option Trade – Akamai Technologies, Inc. (NASDAQ:AKAM) Calls

Friday, May 05, 2017

** OPTION TRADE: Buy the AKAM JUNE 16 2017 55.000 CALL at approximately $0.80. Sell price is left to your own judgment.

For the second quarter in a row, Cambridge-based Akamai Technologies, Inc. (NASDAQ:AKAM), a provider of content delivery and cloud infrastructure services for the delivery of content and applications over the Internet, has seen its stock price drop precipitously after the release of its earnings report.

Akamai, on Tuesday, reported $609 million in first quarter revenue, which actually beat Wall Street expectations. But the company estimated second quarter revenue would be between $597 million and $609 million, below expectations. That prompted a number of analysts, including from Wells Fargo, Guggenheim Partners and Oppenheimer & Co., to cut their price targets on the stock.

Akamai's share price dropped by more than 15 percent Wednesday; closing at $52.79 and at the same time shaving its market valuation by more than $1.6 billion. The company's stock price has dropped by more than 25 percent since Feb. 7, the day before it reported fiscal year 2016 results and saw a similar in share price.

CEO Tom Leighton said Akamai has been relying less and less on those big players for its media-related revenue and wasn't concerned about Wednesday's stock market dip.

"Sometimes there are strong reactions to relatively small and near term media changes," Leighton said in a phone interview. "We make the investments for the company in the long term."

Leighton also pointed to the strong performance of newer segments of Akamai's business, including its cybersecurity division, which accounted for 60 percent of the company's overall revenue in the first quarter. At least one investment analyst, Boston-based JMP Securities LLC, agreed that Akamai "is taking the right steps" to diversify its business and believes it will continue to outperform the market.

As well, Standard & Poor’s reiterated their “Five-Star Strong Buy” on AKAM yesterday despite the 16% decline. They did, however, cut their 12-month target by $5 to $65 and their EPS estimates for 2017 to $2.56 from $2.89.

Buying started at opening Wednesday at $53.90 with support resting at the September 2016 low of $50.76. S&P considers this decline as an “enhanced buying opportunity.” And since the stock is considered “undervalued” by the industry, S&P still views it as a possible “takeover target,” and views the company’s issues as “temporary.”

Fundamentals have not changed much, despite the technical destruction

There is much technical support under the current price at about $53 and wide gaps down; in this situation 8 points, from $51 to $59, are often quickly closed by half.

Influencing Factors

Firstly, the Media segment has two major catalysts over the next several quarters to years that could hugely boost growth:-

1.       The first of those catalysts is the continued shift from Linear TV to Internet TV.

2.       The second media-related catalyst is AR/VR, which could yield hugely positive results for the company's gaming segment. Like the transition from linear TV to internet TV, there is a shift in the gaming world toward AR/VR oriented platforms. Also much like internet TV, AR/VR gaming is highly performance sensitive. That also creates a demand catalyst for AKAM solutions.

Essentially, in the media segment, major product categories are moving toward more performance-sensitive mediums, and that allows AKAM to differentiate itself through quality - to "de-commoditize" the market, which will help grow AKAM's revenues and margins.

Secondly, while growth may be slowing in the security business, the long-term trend is just getting started.

That means retailers are going to significantly build-out their mobile shopping apps, and as these retailers compete to have the best mobile shopping experience, demand for AKAM's mobile-first solutions will soar.

On the financial side, the company has just under $900 million in net cash on the balance sheet. That is about $5 per diluted share, or just under 10% of the current market cap. Cash flows are great, as the company turned $81 million in net income into operating cash flow of $143 million in the quarter.

Free cash flow was about $50 million in the quarter. Cash gross margins and Ebitda margins are relatively stable, with quarter-to-quarter fluctuations simply being noise. The company is buying back shares (1.1 million this past quarter).

Above all else, the valuation is quite attractive. At 18-times forward earnings, investors aren't paying much for exposure to certain high-growth segments like AR/VR gaming.

Analysts and Hedge Funds Opinions     

SunTrust Banks, Inc. cut shares of Akamai Technologies from a buy rating to a hold rating and boosted their price target for the stock from $54.00 to $82.00 in a report on Wednesday.

DA Davidson cut shares of Akamai Technologies from a buy rating to a neutral rating and set a $57.00 price target on the stock in a report on Wednesday.

Two investment analysts have rated the stock with a sell rating, eleven have assigned a hold rating and eleven have given a buy rating to the company. The company has an average rating of Hold and a consensus target price of $67.47.

Summary

Share prices have been unusually volatile in recent quarters, bouncing as high as $72 and as low as $48 over the last 52 weeks. But revenue continues its steady rise and cash flows remain stable, and the newfound focus on security services looks likely to serve Akamai well in the future.

But a drop in excess of 16% is a bit mind-boggling. That is especially true when revenues and earnings are still growing, margins are stable, the multiple isn't rich, the balance sheet is cash-heavy, cash flows are strongly positive and the long-term growth story looks quite promising.

The bear stance appears to be needlessly short-term oriented.

Akamai Technologies has a market cap of $9.15 billion, a PE ratio of 29.53 and a beta of 0.95. The firm’s 50-day moving average is $60.91 and its 200 day moving average is $64.58. Akamai Technologies has a 52 week low of $47.80 and a 52 week high of $71.64.


Option Trade – Activision Blizzard, Inc. (NASDAQ:ATVI) Calls

Thursday, May 04, 2017

** OPTION TRADE: Buy the ATVI JUNE 16 2017 55.000 CALL at approximately $1.20. Sell price is left to your own judgment.

Activision Blizzard, Inc. (NASDAQ:ATVI), a publisher of online, personal computer, console, handheld, mobile and tablet games, will post its quarterly earnings results after the market closes today, Thursday, May 4.

For first-quarter 2017, Activision expects GAAP revenues of $1.55 billion and earnings per share of 25 cents per share. On a non-GAAP basis, revenues and earnings are expected to be $1.550 billion and 51 cents per share, respectively. Deferral revenues are expected to be negative $500 million.

Last quarter, the company delivered a positive earnings surprise of 19.44%. The company has delivered positive earnings surprises in each of the last four quarters with an average beat of 33.88%.

Activision is aggressively working on becoming a media entertainment giant, somewhere on the lines of The Walt Disney Company. Apart from launching a movie studio, the company is also strengthening its presence in the lucrative e-sports market. Recently, Activision announced the launch of Overwatch e-sports league. Plus, it announced a new consumer product division to be spearheaded by ex-Walt Disney executive, Tim Kiplin.

Both brands, Activision and Blizzard, are known for putting out consistently popular and addictive games. Respectively, their biggest franchises are Call of Duty and World of Warcraft, names that even non-gamers recognize. For well over a decade, these properties have been a big part of ATVI's revenue.

Influencing Factors

The latest results have been strong with people playing PC games. In fact, both the Activision and Blizzard sides of the business set all-time records for audience size last year, with 86 million active gamers between them. The older franchises of World of Warcraft and Call of Duty contributed a large portion of that base, but so did newer properties like Hearthstone.

Look for audience levels to rise again this quarter, with a big assist from hit new property Overwatch. That game attracted 25 million registered players quickly after its release to become the quickest franchise to reach that mark in Blizzard's history. The developer ideally kept that momentum going beyond the launch period.

Activision has big plans for the massive user base it acquired when it bought King Digital last year, and this is the quarter when it should show solid progress toward those goals. The company has been carefully rolling out advertising and other monetization upgrades, including in-game purchases, to this audience, and the shifts should drive higher revenue and profitability.

Sales from digital channels spiked by almost 100% last quarter as the company pushed millions of small in-game purchases, new digital subscriptions, and an increasing proportion of full-game downloads.

Digital now makes up roughly three quarters of revenue and has helped produce record profitability for Activision.

Activision's booming subscription business -- anchored by World of Warcraft -- ensures that it has a significantly higher proportion of digital sales than Electronic Arts (NASDAQ:EA). But there's still plenty of room to grow that channel.

Activision could surprise Wall Street with details on an as-yet unannounced new franchise property. There's also the chance that one or more of the new business models it is exploring, including consumer products, TV content licensing, and e-sports, will take off and push results sharply higher than management had expected.

As a tech company that mainly sells software, the need for long-term debt is not dire at ATVI. Even with the increase to cover the King acquisition, the company still has a healthy balance sheet.

The value in the company lies in their intangible assets like their intellectual property. Another good sign for investment in ATVI is that since 2014, the company has been able to reverse a shrinking revenue margin, which has since increased by ~8.1% in 2015 and ~36% in 2016. This expanding sales growth looks to continue, given the success of the company's latest products.

Analysts and Hedge Funds Opinions       

Vetr upgraded shares of Activision Blizzard, Inc. from a hold rating to a buy rating in a report released on Monday, April 17th. They currently have $50.88 price target on the stock.

Also, Morgan Stanley raised their price objective on shares of Activision Blizzard from $54.00 to $55.00 and gave the stock an overweight rating in a report on Monday, March 27th.

As well, Jefferies Group LLC set a $55.00 target price on shares of Activision Blizzard and gave the company a buy rating in a report on Thursday, March 16th.

One research analyst has rated the stock with a sell rating, three have issued a hold rating, eighteen have assigned a buy rating and one has issued a strong buy rating to the stock.

Summary

Gamer engagement forms the basis for Activision's entire business model. So long as the developer can produce a steady stream of high-quality content that keeps players coming back for more, its revenue and profits should keep climbing.

Activision has beaten its own guidance in each of the last four quarters, so investors are expecting mainly good news on Thursday.

Activision Blizzard has a 50-day moving average price of $49.67 and a 200-day moving average price of $43.00. The company has a market capitalization of $39.62 billion, a price-to-earnings ratio of 41.17 and a beta of 1.03. Activision Blizzard has a 12 month low of $33.55 and a 12 month high of $53.03.


Option Trade – Intel Corporation (NASDAQ:INTC) Calls

Wednesday, May 03, 2017

** OPTION TRADE: Buy the INTC MAY 19 2017 36.500 CALL at approximately $0.60. Sell price is left to your own judgment.

Intel Corporation (NASDAQ:INTC), a designer and manufacturer of digital technology platforms, a large-cap value stock and member of the Dow Jones Industrial Average, recently reported earnings of 61 cents. On an adjusted basis, it earned 66 cents. Revenue grew 7% to $14.8 billion, a small gain on earnings from FactSet’s survey of analysts that expected 65 cents on revenue of $14.8 billion.

However, despite beating quarterly estimates coupled with a positive interview of its CFO on CNBC, the stock fell in after-hours trading. The company projects second-quarter revenue to increase and earnings to improve to about 68 cents, which is slightly above analysts’ expectations. For this year Intel projects revenues of $60 billion and an adjusted EPS of $2.85.

Standard & Poor’s has an EPS estimate of $2.94 for 2018.

Influencing Factors

Although headwinds exist from an overall decline in PC sales, Intel is forecast to experience growth from within the “Internet of Things” and an expanding data center growth from its cloud investments.

The company’s plan to acquire Mobileye NV (NYSE:MBLY), a leader in the high-growth market for autonomous vehicles should offset any declines in PC chip sales. Curiously its Q1 revenue increase was helped by a slight increase in PC sales.

In about a month, Intel is expected to roll out its next-generation processor family for high-end desktops, known as Skylake-X. The chips will, per a recent leak, feature between six and 12 processor cores, have improved processor cores compared to the current Broadwell-E parts that Intel is selling in this market, and be manufactured in the company's new 14-nanometer-plus technology.

All in all, it looks like Intel is preparing some interesting chips that, along with a new platform known as X299, should be interesting to desktop enthusiasts, prosumers, and even gamers.

Technically INTC is currently consolidating in a right triangle and the MACD indicator is in positive territory.

Analysts and Hedge Funds Opinions

B. Riley reaffirmed a “buy” rating and issued a $44.00 price target on shares of Intel in a research note on Monday, April 3rd.

Needham & Company LLC reaffirmed a “buy” rating and set a $43.00 price objective on shares of Intel in a research report on Saturday.

Finally, Cowen and Company reaffirmed a “market perform” rating and set a $39.00 price objective on shares of Intel in a research report on Friday, April 28th.

Four analysts have rated the stock with a sell rating, sixteen have assigned a hold rating and twenty-six have given a buy rating to the company. The stock presently has an average rating of “Hold” and an average price target of $40.27.

Also, Jarislowsky Fraser Ltd boosted its stake in Intel by 11.9% during the fourth quarter, according to its most recent Form 13F filing with the SEC. The firm owned 35,293 shares of the chip maker’s stock after buying an additional 3,759 shares during the period. Jarislowsky Fraser Ltd’s holdings in Intel were worth $1,280,000 as of its most recent SEC filing.

Summary

Intel Co. has a 52-week low of $29.50 and a 52-week high of $38.45. The company has a market cap of $174.61 billion, a P/E ratio of 16.00 and a beta of 1.03. The company has a 50-day moving average of $35.87 and a 200-day moving average of $35.91.


Option Trade – Square Inc (NYSE:SQ) Calls

Tuesday, May 02, 2017

** OPTION TRADE: Buy the SQ MAY 19 2017 19.000 CALL at approximately $0.80. Sell price is left to your own judgment.

Payment processor, Square Inc (NYSE:SQ), will report results on Wednesday, May 3, after the close. Analysts are looking for earnings of two cents per share on revenues of $193.3 million.

Shares of Square are marching up and out of a three-month consolidation range and are squarely at fresh all-time highs.

The company, led by Twitter Inc (NYSE:TWTR) co-founder Jack Dorsey, has recently been aggressively diversifying via acquisitions into new business verticals such as food delivery, locality-based social networking, loans, and software services.

Other recent efforts including the teasing of a Square debit card as the next logical step of the Square Cash virtual debit card.

Momentum is on Square’s side, with investor’s blatantly driving SQ stock higher with just days to go before its next quarterly report.

Square, which came public in late 2015, traded higher in late February after reporting better-than-expected earnings of 5 cents per share (vs. a 5-cent loss in the year prior) on a 42.7% rise in revenue to $191.9 million.

Management guided Q1 earnings between breakeven and 2 cents per share on revenues of upwards of $193 million on growth driven by increased transaction volume in its payment processing network as well as subscription and services-based revenue to small businesses.

Influencing Factors

1.       Strong Growth: In the fourth quarter of 2016, Square’s core payments business was strong and witnessed growth. Gross payment volume (GPV) was $13.7 billion, a significant 34% increase on a year-over-year basis. Net revenue was 452 million, up 21% year over year. We expect this momentum to continue in the first quarter of 2017.

2.       Software and Data: Caviar and Capital continue to drive growth in this segment. Square currently has a healthy group of investors, which is expected to help the company meet growth targets for Capital in the first quarter as well as in 2017. Contributions from instant deposits are also expected to pick up pace. Square continues to innovate with its software and services to enhance their accessibility in both existing and potential markets. 

3.       European Venture: The company made its first European venture in Mar 2017 with the launch of its mobile payment services in the U.K. It became the fifth market where Square services are now available after the U.S., Australia, Canada and Japan. We believe this is a sensible move on Square’s part as the market has a considerably high concentration of small and medium-sized businesses and thus offers significant growth opportunities.  We expect contributions from this venture in the first quarter.

4.       Q1 Guidance: The company expects adjusted revenues to be anywhere between $192 million and $193 million, and adjusted EBITDA between $14 million and $18 million. This marks an 8% year-over-year margin improvement at the midpoint.

Analysts and Hedge Funds Opinions

The Vetr crowd on Friday upgraded its rating for Square Inc from 3.5 stars (Buy), issued four days ago, to 4.5 stars (Strong Buy). Crowd sentiment at the time of the upgrade was generally positive, with 66 percent of Vetr user ratings bullish.

And, Pacific Crest set an $18.00 price objective on Square, Inc. in a report released on Thursday. The brokerage currently has a buy rating on the stock.

Also, Needham & Company LLC increased their price target on Square from $17.00 to $20.00 and gave the company a buy rating in a research report on Thursday, February 23rd.

As well, Compass Point increased their price target on Square from $14.00 to $19.00 and gave the company a buy rating in a research report on Tuesday, January 10th.

One equities research analyst has rated the stock with a sell rating, ten have assigned a hold rating and twenty-two have given a buy rating to the company.

Summary

Since April 13, share price in the business technology company grew by more than 9 percent to an all-time high of $18.45 on April 27, and yesterday saw the price reach $18.80.

Square Inc’s 50 day moving average price is $17.18 and its 200-day moving average price is $14.60. Square Inc has a 52 week low of $8.42 and a 52 week high of $18.80. The company’s market capitalization is $6.83 billion.




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