Nasdaq (NDAQ) Stock Up 21% YTD: Will the Rally Continue?

Nasdaq NDAQ shares have gained 21.4% year to date compared with the industry's increase of 4.5% and the Zacks S&P 500 composite’s gain of 6.5% in the said time frame. With market capitalization of $21.4 billion, average volume of shares traded in the last three months was 0.7 million.

The company continues to benefit from organic revenue growth, initiatives that enable entry and cross-selling opportunities in new markets at a low-cost and highly-flexible platform, focus on Market Technology and Information Services businesses and a healthy balance sheet.  Nasdaq delivered earnings beat in the last six quarters.

Return on equity (ROE) of 16.9% in the trailing twelve months was better than the industry average of 12.3%, reflecting the company’s efficiency in utilizing shareholders’ fund.  The company has been continually improving its ROE since 2014.

Can It Retain the Momentum?    

This Zacks Rank #3 (Hold) global technology company serving the capital markets and other industries is on track regarding its goals of maximizing opportunities as an innovative analytics and technology partner in the capital markets, developing and deploying marketplace economy technology strategy, and consolidating competitive edge in its core businesses. It has already invested $1.2 billion in growth platforms and targets significant share of more than $22 billion addressable market.

The company has intensified its focus on Market Technology and Information Services businesses, which offer the biggest growth opportunities per the company’s developmental strategies. Nasdaq aims Market Technology organic revenues to grow 8-11% and Information Services organic revenues to grow 5-7% over the medium term. Corporate Services’ organic revenues are estimated to grow 3.5%.

The company stays focused on improving operating leverage and thus targets 5% to 7% organic revenue growth from non-trading segments over the medium term against about 3% operating expense growth.

Its diverse business model helps it generate modest operating cash flow. Its free cash flow (FCF) has grown at a four-year (2016-2019) CAGR of 9%. FVF yield of 4.9% betters the S&P 500’s yield of 4.1%.

Nasdaq’s dividend payout of 39% currently yields 1.6%, higher than the industry average of 1.4%. The company has been repurchasing shares to boost shareholder value and had $480 million remaining under its share repurchase authorization as of Jun 30, 2020. It targets double digit total shareholders return.

The Zacks Consensus Estimate for 2020 and 2021 earnings indicates 16.8% and 2.1% year-over-year increase respectively. The expected long-term earnings growth is pegged at 8.6%, better than the industry average of 6.6%. The stock carries an impressive Growth Score of B. Growth Score analyzes a company’s growth prospects.

Stocks to Consider

Some better-ranked companies in the finance sector include MarketAxess Holdings MKTX, OTC Markets Group OTCM and The Allstate Corporation ALL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarketAxess delivered earnings surprise of 3.29% in the last reported quarter.

OTC Markets Group delivered earnings surprise of 38.46% in the last reported quarter.

Allstate delivered earnings surprise of 74.47% in the last reported quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.