On Apr 9, 2013, we reiterated our Neutral recommendation on
Nasdaq OMX Group Inc.
) based on its diversified growth strategy and expense
management, which is partially offset by higher debt concerns and
Why the Retention?
Estimates for this global stock exchange witnessed minor
corrections since the company reported its fourth-quarter 2012
results on Jan 31. Nasdaq's fourth-quarter earnings per share of
64 cents and net revenue of $419 million comfortably surpassed
the Zacks Consensus Estimate of 61 cents and $412 million,
Results reflected lower industry trading volumes and
unfavorable currency fluctuations, partly mitigated by higher
order intakes and flattish expense growth, on a year-over-year
basis. Operating margin was 44.4%, almost in line with 44.5% in
the year-ago quarter, led by a faltered top line.
Nasdaq's strategic initiatives have helped it improve its
total debt-to-EBITDA ratio to 2.3x in 2012 from 2.4x in 2011 and
2.9x in 2010, with the reduction in debt obligations. The company
is making investments to diversify its business profile to
well-align with the current market dynamics. Additionally,
increased retained earnings and free cash flow along with the
ongoing strategic business initiatives are expected to generate
improved earnings and operating cash flow in the long run.
The over $1.0 billion worth of proposed acquisitions (eSpeed
and the corporate arm of Thomson Reuters), scheduled to culminate
by mid-2013, are likely to be accretive to earnings. However,
ratings agency Moody's Investor Service of
) has indicated the likelihood of an additional downgrade given
the accretion in debt followed by these acquisitions.
Going ahead, increased competition amplify the risk of
hampering growth in trading activities, pricing and the markets
for the company's products, thereby adversely affecting the
operating results and market share.
Following the release of the fourth-quarter results, the Zacks
Consensus Estimate for 2013 inched down 1.4% to $2.73 per share
in the last 60 days. Additionally, the Zacks Consensus Estimate
for 2014 edged down 1.9% to $3.07 per share in the last 60 days.
With the Zacks Consensus Estimates for both 2013 and 2014
witnessing a downward trend in the near term, Nasdaq now has a
Zacks Rank #4 (Sell).
Other Financial Stocks That Warrant a Look
While we see slight downward pressure on Nasdaq in the near
term, other stocks in the financial sector that are outperforming
Euronet Worldwide Inc.
Columbia Banking System Inc.
). All of these carry a Zacks Rank #1 (Strong Buy).
COLUMBIA BK SYS (COLB): Free Stock Analysis
EURONET WORLDWD (EEFT): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
To read this article on Zacks.com click here.