MarketAxess Holdings Inc. MKTX , with an estimated 85% electronic market share in U.S. high-grade and high-yield bond trading, has been in investors' good books by virtue of its consistent operating performance.
The stock has gained 54% compared with the industry's rise of 12.5%. Other companies in the same space such as CBOE Holdings, CBOE
, Nasdaq, Inc. NDAQ
and CME Group, Inc. CME
are up 10.1%, 17% and 5.7%, respectively. MarketAxess has been rewarded for its growth, which is driven by accelerated adoption of Open Trading, substantial growth in its international businesses, and strong engagement with clients.
The company's revenues have been consistently growing since 2005 (except 2008 when revenues declined by just 0.6%). Revenues have witnessed a CAGR of 14.6% from 2012-2018. This top-line growth was primarily driven by persistent increase in commission (which accounts for the lion's share of total revenues) received on trading volumes. It has been successful in increasing its trading volumes by way of inorganic and organic strategies.
MarketAxess supplements its organic growth by entering into alliances or by acquiring businesses or technologies, which enables it to enter new markets, provide new products or services.
Some of its notable deals are - the acquisition of Xtrakter Limited that provided the company with an expanded set of technology solutions; an alliance with BlackRock, Inc., which improved the range of trading connections available to global credit market participants and an agreement with S&P Dow Jones Indices to jointly develop indices that will track the most liquid segments of the U.S. corporate bond market. The company's inorganic growth, which has also aided top-line growth, remains impressive.
The company has been able to fund its acquisition backed by its strong liquidity position. Notably, it has been generating free cash flow over the years. Strong liquidity not only mitigates balance-sheet risks, but also paves the way for an accelerated capital deployment in employees, trading platform, new products, geographic expansion and infrastructure.
The company remains focused on enhancing shareholders' value through share buy and dividend hikes. The company's latest dividend hike was by 21.4%, marking tenth consecutive years of dividend increase.
Moreover, its efforts of pursuing international opportunities, a compelling economic market model and a diversified product suite of the U.S. high-grade floating rate and other credit bonds to broaden the scope of volumes growth for MarketAxess, going forward, will further drive commission revenues.
Given the strong operating fundamentals, we expect the stock price to continue its rally. The stock carrying a Zacks Rank #3 (Hold) has witnessed an upward revision in 2019 and 2020 earnings estimates over the past 30 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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