Akamai Technologies, Inc. (AKAM): Making Short Work of $65?

Shares of Akamai Technologies, Inc. (NASDAQ:AKAM) are outperforming on a day when the broader market is struggling to get above water. AKAM is up more than 2% as we type thanks to an upgrade from Pacific Crest Securities.

Analyst, Chad Bartley upgraded the media delivery solutions company to an "Outperform" from "Sector Perform" rating and attached a $65 price-target.

Akamai provides content delivery and cloud infrastructure services for the delivery of content and applications over the Internet. The Company's solutions range from delivery of conventional content on Websites, to tools that support the delivery and operation of cloud-based applications, to live and on-demand streaming video capabilities all designed to help its customers interact with people accessing the Internet from myriad devices and locations around the world.

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Bartley cites two main reasons for his call, "The two primary factors for the change in our opinion are: 1) the strong acceleration in media traffic that we have seen year-to-date, including 60% in the first quarter, high 60% in April and low 70% in May; and 2) strong first-half revenue performance despite lower pricing with the company's largest customer, which makes us less concerned about pricing pressure hurting revenue growth."

To justify $65, he explains, "Our $65 target is based on 11 times enterprise value/earnings before interest, taxes, depreciation and amortization (EV/Ebitda) and 24 times price/earnings multiple. These target valuation multiples are also in line with the trailing-12-month averages, and below the peak multiple of 13 times and 27 times."

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Since Pacific Crest's basis is earnings based, let's examine the tech company's recent price-to-earnings (P/E) history to see how $65 measures up.

For 2014, analysts forecast earnings-per-share (EPS) of $2.29 and $2.69 next year. In the past five-years, the average P/E was 35.71 with a low of 18.41 and high of 64.86. During the same timeframe, AKAM's earnings averaged annual growth of 13.21%. That means Wall Street has been willing to pay a P/E premium versus bottom line growth. The annual rate for the next half-decade is slated to increase to 15.29%, which could mean P/E expansion if the same premium holds.

Expansion aside, at the average price-to-earnings ratio, Akamai would price out at $81.77 and $96.06 based on the 14 and 15 consensus, respectively. Both numbers make $65 look small. Meanwhile, the peer group trades at a much lower P/E multiple of 10.18, which delivers AKAM price-targets under $30.  That being said, AKAM's revenue growth is stronger than the group so Akamai should be rewarded with a premium.

Overall: Based on Akamai Technologies, Inc.'s (NASDAQ:AKAM) average P/E since 2009, Bartley's $65 could come into focus sooner than later with the potential of considerable upside beyond the target.