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Why Is MarketAxess (MKTX) Up 8% Since the Last Earnings Report?

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It has been about a month since the last earnings report for MarketAxess Holdings, Inc. (MKTX - Free Report) . Shares have added about 8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

MarketAxess Beats on Q4 Earnings

MarketAxess Holdings fourth-quarter 2016 earnings per share of $0.88 beat the Zacks Consensus Estimate of $0.84. Also, the bottom line improved 35.4% from the year-ago quarter.

Results were primarily driven by a robust top-line performance.

The company witnessed quarterly average daily volume records in the U.S. high-grade, emerging markets and Eurobonds. Management noted in its earnings call conference, “This is an extraordinary outcome given the normal seasonal factors impacting the quarter, a combination of strong market volume growth post the U.S. elections and continued gains in market share contributed to the results.”

Net income for the quarter was $33.2 million, surging 35.4% year over year.

For full-year 2016, earnings per share of $3.34 outpaced the Zacks Consensus Estimate of $3.30. In addition, it improved from the prior-year figure of $2.55. Net income for 2016 was $126.2 million, up 31.4% from the prior year.

Higher Trading Volume Drives Revenues

Revenues for 2016 came in at $369.9 million, up 22% year over year. The figure also came slightly above the Zacks Consensus Estimate of $369 million.

For fourth-quarter 2016, MarketAxess posted total revenue of $94.4 million, surpassing the Zacks Consensus Estimate of $93.6 million. Revenues also climbed 23.2% year over year.

The top-line improvement can be primarily attributed to 26.5% growth in commission revenues.

However, other revenues consisting of information and post-trade services, technology products and services, investment income and other revenue, edged down 1.1% year over year to $8.9 million. The decline was mainly due to an unfavorable impact of $2.7 million stemming from a stronger U.S. dollar offset by higher data revenue.

Total trading volume jumped 35.1% in the reported quarter year over year to a $338.3 billion.

Total expense of MarketAxess increased 11.2% year over year to $44.1 million. The rise came on the back of increase in employee compensation and benefits costs, technology and communications, professional and consulting fees, marketing and advertising, and general and administrative expenses.

Financial Update

As of Dec 31, 2016, total assets were $528.0 million, up 20.3% from year-end 2015.

Total cash, cash equivalents and investment of $362.6 million as of Dec 31, 2016, advanced 27.5% from year-end 2015. Total stockholder’s equity was $468.0 million, up from $390.7 million in the prior year.

Share Repurchase Update

During the reported quarter, MarketAxess repurchased 62,800 shares for $10.1 million. As of Dec 31, 2016, shares of about $51.1 million were available for repurchases under its existing program.

Outlook

For 2017, the company expects total expenses in the range of $192–$208 million and its capital expenditures in the range of $25–$30 million. Overall effective tax rate for the year is estimated between 32% and 34%.

First-quarter 2017 U.S. high-grade distribution fees are expected to be in line with fourth-quarter 2016 level.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend for fresh estimates. There have been two revisions down for the current quarter.

VGM Scores

At this time, MarketAxess' stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'D'. Following a similar course, the stock was allocated also a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is suitable solely for growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.


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