On Dec 5, we reiterated stock exchange operator -
Nasdaq OMX Group Inc.
) at Neutral based on its improved revenue drivers, partially
offset by faltering financial leverage due to raised debt and
Why the Retention?
Estimates for this global stock exchange witnessed minor
upward corrections since the company reported its third-quarter
2013 results on Oct 23. Nasdaq's third-quarter earnings per share
of 66 cents and net revenue of $506 million topped the Zacks
Consensus Estimate of 62 cents and $502 million,
The top and bottom line surpassed the year-ago results as
well, based on improved revenues across segments. Particularly,
the company's efforts to enhance its technology services are
showing positive results. The highs were partially offset by
higher-than-expected expense growth, primarily driven by
acquisition-related expense. As a result, operating margin dipped
to 40% from 44% in the year-ago quarter.
Management aims to reduce debt raised for the recent
acquisitions (eSpeed and the corporate arm of Thomson Reuters)
over the next 12 months, while also accelerating growth through
diversification. While the company reduced its long-term debt
during the third-quarter, Nasdaq has shelved its share buyback
program until it resumes a total debt-to-EBITDA ratio of about
2.5x by mid-2014, the same currently figuring at 2.9x at the end
of Sep 2013.
However, the company is making investments to diversify its
business profile to align well with the current market dynamics.
Nasdaq's revenue drivers and improved volumes are expected to
generate surplus growth given improving industry trends,
althoughincreased competition amplifies operational risk. Core
expense growth in 2013 is also likely to approximate that of
Following the release of the third-quarter results, the Zacks
Consensus Estimate for 2013 and 2014 edged up 2.0% each to $2.57
per share and $3.02 a share, respectively, in the last 60 days.
With the Zacks Consensus Estimates for both 2013 and 2014
witnessing an upward trend in the near term, Nasdaq now has a
Zacks Rank #2 (Buy).
Other Financial Stocks That Warrant a Look
Besides Nasdaq, we also foresee some upward pressure on its
CBOE Holdings Inc.
IntercontinentalExchange Group Inc.
), both of which carry the same Zacks Rank as Nasdaq. Another
stock worth considering in thefinancial sector is
Euronet Worldwide Inc.
) which sports a Zacks Rank #1 (Strong Buy).
CBOE HOLDINGS (CBOE): Free Stock Analysis
EURONET WORLDWD (EEFT): Free Stock Analysis
INTERCONTNTLEXC (ICE): Free Stock Analysis
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
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