On Jun 18, we issued an updated research report on
Nasdaq OMX Group Inc.
). Although the company's debt level remains historically high, it
is gradually improving. Meanwhile, benefits from recent
acquisitions and Nasdaq's organic growth profile are partly offset
by higher expenses.
This Zacks Rank #3 (Hold) stock delivered positive earnings
surprises in 3 of the last 4 quarters with an average beat of 2.7%.
The company's first-quarter earnings also breezed past the Zacks
Consensus Estimate by 1.4% and the year-ago quarter figure by
Nasdaq's organic growth (9% in first-quarter 2014) is being
aided by itsgrowth strategy of accelerating its non-transaction
revenue base, which includes technology and information revenue,
injecting dynamism into its business profile. This business
recorded impressive revenue growth in 2013 and first-quarter 2014
(up 27% year-over-year and accounting for 72% of total net
Moreover, the Thomson Reuters, eSpeed and BWise acquisitions are
supporting non-transaction business growth. Management also aims
its Technology Solutions margins to reach 20% by 2015-end from 6%
in first-quarter 2014. New products are further projected in 2014
from this portfolio.The company also topped the listings market as
its number of initial public offerings (IPOs)rose 52% in 2013 and
64% in first-quarter of 2014, indicating an improved outlook for
Meanwhile, reduction in total debt obligations resulted in
improved total debt-to-EBITDA of 2.6x at Mar 2014-end from 3.3x at
2013-end, which had deteriorated from 2.3x in 2012. Nevertheless,
Nasdaq has shelved its share buyback program for almost an year
now, until it resumes a total debt-to-EBITDA ratio of about 2.5x by
mid-2014. Furthermore, the company faces headwinds from intense
competition, sluggish trading activity and higher expenses, which
weigh on margins and operating leverage.
Overall, a cautious risk-reward balance in the near term led to
downward estimate revisions for 2014 and 2015. Hence, the Zacks
Consensus Estimate for 2014 and 2015 are now pegged at $2.92 and
$3.32 per share, down 1.4% and 1.2%, respectively, in the last 30
Key Picks in the Sector
While we remain at the periphery with regard to Nasdaq at
present, better-ranked stocks in the financial sector include
Ladder Capital Corp.
Euronet Worldwide Inc.
VeriFone Systems Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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