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Bear of the Day: Akamai Technologies (AKAM)

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Akamai Technologies (AKAM - Free Report) , the $8 billion provider of cloud data and video delivery/storage solutions, has once again fallen into the cellar of the Zacks Rank as EPS estimates are lowered by Wall Street analysts.

My colleague Brian Bolan wrote about this situation back in late March when shares were trading $63...

Here is the reason for this stock, that normally beats the number, to be the Bear of the Day. The Zacks Consensus Estimate for 2017 has slid from $2.48 in June 2016 to $2.31 in October and recently slipped to $2.20 in March. That is not what investors want to see.

The 2018 Zacks Consensus Estimate has also seen estimates trimmed, as they moved from $3.37 to $2.76 to $2.53 over the same time horizon.

When estimates fall by 20% over several months, the PE must expand for the stock to hold its current price. That is exactly what has been happening for AKAM.

(end of March 27 Bear of the Day excerpt)

We've seen two quarterly updates from Akamai since that report from Brian and things have continued south with the full-year 2017 EPS consensus slipping in the last 60 days from $1.96 to $1.86.

That's right. In late March, AKAM's consensus profit projection was for $2.20 and 60 days ago it had already fallen to $1.96.

This is the trend that weighs on the shares and created a new 52-week low in late July at $45.41.

And this also illustrates the power of the Zacks Rank to identify earnings momentum trends that become either bullish or bearish for stocks.

Take a look at the proprietary Zacks Price & Consensus chart for AKAM and focus on the gold line of 2017 EPS estimates. Notice how price followed the lead of that trend...

Meanwhile, 2018 full year estimates have dropped from $2.15 to $2.01 in the past 60 days. Recall that in March the 2018 consensus was still calling for $2.53.

This is a brutal decline in the profit outlook that has manifested itself in the share price and valuation.

If you are thinking about catching this falling knife, you might want to wait until there are signs that the earnings picture is turning around. The Zacks Rank will let you know as it "catches the turn" in analyst forecasts.

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