On Jul 5, we upgraded our recommendation on
Nasdaq OMX Group Inc.
) to Neutral based on its latest acquisitions that create
incremental revenue opportunities. However, the sluggish trading
volumes environment and intense competition continue to pose
Why the Upgrade?
Estimates for this global stock exchange operator witnessed
improvement or remained stable after the company reported its
first quarter 2013 results on Apr 24. Nasdaq's first quarter
earnings of 64 cents surpassed the Zacks Consensus Estimate as
well as the prior-year quarter earnings of 61 cents. Total
revenue of $418 million edged up 1% year over year but lagged the
Zacks Consensus Estimate of $426 million, displaying lower
revenues from market and listing services.
However, operating expenses were kept in check with only 2.2%
growth, while total order value witnessed improvement. Yet, order
intakes plunged and operating margin dipped to 43% from 44% in
the year-ago quarter. Overall, Nasdaq delivered positive earnings
surprises in all of the last 4 quarters with an average beat of
Following the release of the first-quarter results and
culmination of significant acquisitions, the Zacks Consensus
Estimate for 2013 stood intact at $2.62 per share in the last 60
days. However, the Zacks Consensus Estimate for 2014 grew 3.4% to
$3.04 per share in the last 60 days. With the Zacks Consensus
Estimates showing no clear directional pressure in 2013 but some
growth in 2014, Nasdaq now has a Zacks Rank #3 (Hold).
Although the latest acquisitions of the corporate arm of
Thomson Reuters and the benchmark US Treasuries' eSpeed has
raised the debt level of Nasdaq, these are projected to bring in
incremental revenues and cost synergies. Management also expects
to reduce its debt raised through the latest acquisitions over
the next 12 months.
Overall, the intense competition and changing dynamics in the
industry justify Nasdaq's inorganic growth strategy, further
shifting its revenue base in the non-transaction space to
neutralize the effect of soft volumes environment.
Other Financial Stocks That Warrant a Look
Apart from Nasdaq, other stocks in the stock exchange sector
that are outperforming include
CME Group Inc.
CBOE Holdings Inc.
MarketAxess Holdings Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
CBOE HOLDINGS (CBOE): Free Stock Analysis
CME GROUP INC (CME): Free Stock Analysis
MARKETAXESS HLD (MKTX): Free Stock Analysis
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
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