We have upgraded our recommendation on
NASDAQ OMX Group Inc.
) to Neutral from Underperform based on its recent proactive
investments to penetrate deeper into the European over-the-counter
(OTC) market, among others, which reflect the company's long-term
growth strategy. However, headwinds related to trading volumes and
pricing continue to be the worrying factors.
The company's first-quarter 2012 operating earnings per share of
61 cents fell shy of the Zacks Consensus Estimate of 63 cents, but
were in line with the prior-year quarter's earnings. NASDAQ's GAAP
net income came in at $85 million or 48 cents per share, lagging
net income of$104 million or 57 cents per share recorded in the
NASDAQ continues to suffer due to declining and weak trading
volumes, which is directly affected by economic and market
conditions, stringent regulations, volatility of interest rates,
inflation and changes in price levels of securities and the overall
level of investor confidence. These limitations reflect the
pressing need to respond to the changing industry dynamics and dig
in opportunities for gaining competitive strength.
Moreover, severe competition from arch rivals such as
NYX Euronext Inc.
CME Group Inc.
) continues to be a lingering concern for NASDAQ. This concern is
of particular importance now as the company is aspiring to
strengthen its position in derivative and OTC markets, where these
rivals are the dominant players.
Conversely, intense competition has also been inspiring the
company to explore dynamic growth options into various markets, in
an effort to maintain or increase its eroding market share.
Accordingly, the latest plan to launch a new interest rate
derivative trading platform - NASDAQ NLX - in early 2013 also
justifies its strategic move to attain competitive edge in Europe.
Moreover, the launch of NASDAQ's third retail equity stock options
trading platform - BX Options - is expected to attract retail
investors, thereby boosting trading volumes in the long run.
Meanwhile, the strategic acquisitions such as NOS Clearing,
BWise, Glide Technologies, Lithuanian CSD, RapiData, SMART group,
ZVM and FTEN enable the company to enter new markets on a low cost
and highly flexible platform. Additionally, the company's
high-grade X-stream INET technologies are well-positioned to
contribute to growth as the industry is becoming more focused on
solutions for effectively managing risk. Overall, we believe that
these factors should create additional sales opportunities once the
Hence, based on the pros and cons, the Zacks Consensus Estimate
pegs earnings for the second quarter of 2012 at 61 cents per share,
which is about 1% lower than the year-ago quarter. For 2012,
earnings are expected to climb about 1% over 2011 to $2.56 per
Currently, NASDAQ carries a Zacks Rank #4, implying a short-term
Sell rating, although long-term recommendation is Neutral.
CME GROUP INC (CME): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
NYSE EURONEXT (NYX): Free Stock Analysis Report
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