This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
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Examining Acadia, Adobe, and SalesForce – A Look At The Week To Come
Inflation watch is not over just yet, this week the consumer price index (CPI) will come Tuesday. According to Bloomberg, estimates are calling for a rise of 2.2 percent year-over-year, while ex-food and energy a gain of 1.9 percent y/y. Then on Wednesday morning, we get the Producer Price Index, and estimates are calling for a month over month gain of 0.2 percent. If the results come in as expected my guess is that market will be pleased, these estimates are not a sign of an overheating economy or inflation.
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This week will also mark quadruple witching expiration, which means Friday could be an exciting day with a high level of volatility, just keep that in mind.
The Wall Street Journal reported late on Friday that now Intel may look to acquire Broadcom, in a case of the hunter becoming the hunted. It is incredible the that drama keeps getting more and more entangled. I have no idea where it goes from here, but perhaps with Intel in pursuit to acquire Broadcom trying to block Broadcom’s acquisition of Qualcomm, maybe Broadcom backs off. There are plenty of other chip companies around that Broadcom could fit into its portfolio. But the news is likely to give investors even more reason to keep aggressively buying the chip stocks.
Adobe has been a fantastic stock over the years, with the stock up 185 percent over the past three years! The chart is incredible, and it seems to have broken out yet again and looks to be entering a “Netflix” ramp-up on the charts.
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Earnings in 2018 are expected to grow at 45.7 percent to $6.28 per shares, while revenue is forecast to rise by 20 percent to $$8.77 billion in 2018. But now, analyst views are pointing to earnings growth of about 13 percent in 2019 to $7.10 and 15 percent growth in 2020 to $8.20. Is this a Nvidia type of story where analysts are underestimating growth, for the company only to come out and top estimates? It may not be the case with Adobe because last quarter they just surprised the street on earnings by 9 percent, and 2.7 percent on revenue, nowhere near a Nvidia type of beat.
ADBE Price Target data by YCharts
Of the 33 analysts that cover the stock, 82 percent have a buy or outperform rating, while the average price target on the stock is at roughly $218. Are analysts price target adjustments on the way? Potentially. The stock is not cheap at 31 times one-year forward earnings estimates, and 10.5 times one-year forward sales. Tough call….
SalesForce is another stock that looks to have broken out, but again not all that different to Adobe. Earnings are forecast to climb by nearly 52 percent in 2018 to $2.05, while revenue is expected to grow by almost 21 percent to $12.67 billion. But the earnings growth slows to the mid-20 percent range, which is still very fast, but it comes with a high price tag, at 50 times one-year forward earnings.
The stock is trading well above its historical trading channel, and while 91 percent of the 45 analysts covering the stock have a buy or outperforming rating on the stock, their average price target is only $135.88, only 6 percent from the current price.
CRM Price Target data by YCharts
Acadia has performed horribly since results came out, and to be honest, there was nothing terrible enough to warrant shares being down by 21 percent since. I find it interesting that analysts have raised their revenue estimates for the year 2020 to $838 million! Meanwhile, the street is looking for revenue of $263 million in 2018, and $443 million in 2019. In fact, Wall Street is modeling for the company to earn $1.78 per share by the year 2020. Those are significant revenue and earnings growth numbers, the only questions I have is what are the estimates assuming? Is it just the market for Parkinson Disease Psychosis, or are they factoring in the success of future trials? I’m not sure, the only trial that we will get color on anytime soon is the Depression trial, so it is likely all based on PDP.
The average price target on the stock is $50.11, yet shares trade at only $25.33 today, so there again, another example of a big disconnect by the street, and the stock. Who is right? We shall find out eventually.
That is gonna be it, for now, good luck!
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Michael Kramer and the clients of Mott Capital own shares of ACAD
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Tags: #sp500 #intel #broadcom #qualcomm #acadia #salesforce #adobe