We have reiterated our Neutral recommendation on
NASDAQ OMX Group Inc.
) based on its efforts to expand in the international markets and
build a low-cost trading platform. However, heightened
competitive pressure amid weak trading volumes and margins
continue to dent our optimism.
The company reported operating earnings of 62 cents per share
in the third quarter of 2012, surpassing the Zacks Consensus
Estimate by a couple of pennies. However, it fell shy of the
prior-year quarter's earnings of 67 cents a share by a nickel.
The year-over-year shortfall reflects a reduced top line based on
low industry trading volumes and the unfavourable impact from
NASDAQ has been making proactive investments to penetrate
deeper into the European over-the-counter (OTC) market. The
company's latest plan to launch a new interest rate derivative
trading platform NASDAQ NLX in early 2013 also elucidates its
strategic move to attain a competitive edge in Europe.
Furthermore, the new Globex Family Index is enhancing the Globex
platform, accounting for 98% of the global equity investment
market with about 24,000 benchmark indices.
Overall, we believe that these factors should create
additional sales opportunities once the markets rebound. These
growth drivers and improved volumes aided by market stability
have the potency to generate accelerated earnings and attract new
listings and client activity.
Additionally, increased retained earnings and cash along with
the ongoing strategic business initiatives are expected to
generate improved earnings and operating cash flow in the long
run. NASDAQ's fair liquidity also helps it return value to
shareholders from time to time. This is reflected by the
expansion of the share buyback program in August this year and
the initiation of a regular cash dividend in April 2012.
Despite this, NASDAQ continues to suffer from an eroding
market share and weak trading volumes, which is directly affected
by the economic and market conditions, volatility of interest
rates, inflation and changes in price levels of securities.These
limitations reflect the pressing need to respond to the changing
industry dynamics and dig in opportunities for gaining
Moreover, severe competition from arch rivals such as
NYSE Euronext Inc.
CME Group Inc.
) continues to be a lingering concern for NASDAQ. The upcoming
merger of NYSE with
) raises the concerns about maintaining a competitive and
This gets more crucial as the fragile top-line scenario has
been generating lower earnings, cash balance and operating cash
flow, reflecting a cautious outlook on the company's
fundamentals. We do not expect random growth in the top line
unless the current market recovery provides resonance to credit
quality. In addition, the current initiatives that are being
taken up by regulators and governments across the U.S. and Europe
could have a material adverse effect on overall trading
Hence, based on the pros and cons, the Zacks Consensus
Estimate pegs earnings for the fourth quarter of 2012 at 61 cents
per share, which is about 2% lower than the year-ago quarter.
Even for 2012, earnings are expected to decline about 2% over
2011 to $2.48 per share.
Currently, NASDAQ carries a Zacks Rank #3, indicating no clear
directional pressure on the stock in the near term.
CME GROUP INC (CME): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
NYSE EURONEXT (NYX): Free Stock Analysis
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