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4 Securities and Exchanges to Watch Out For Amid Industry Challenges
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A compelling and diversified product portfolio helps drive revenues of Zacks Securities and Exchanges industry players. Increase in trading volumes, product expansion through prudent acquisitions and increased adoption of a greater number of crypto assets with increased interest across the entire cryptoeconomy.are expected to benefit Cboe Global Markets (CBOE - Free Report) , CME Group (CME - Free Report) , Nasdaq (NDAQ - Free Report) and OTC Markets Group Inc. (OTCM - Free Report) . Increasing focus on accelerating its non-trading revenue base, which includes market technology, listing and information revenues, infuse dynamism in the business profile of industry players. However, alterations in investment patterns and priorities, and compliance with regulations pose challenges.
About the Industry
The Zacks Securities and Exchanges industry comprises companies that operate electronic marketplaces, which facilitate the buying and selling of stocks, stock options, bonds or commodity contracts. Trading across a diverse range of products in multiple asset classes and geographies are facilitated by these players. These companies generate revenues from fees received from the listed companies on their exchanges. They also provide a range of data and listing services to global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, investments, risk management, desktops and connectivity solutions as well as corporate and ETF listing services on the cash equity exchanges of the industry players. The industry is also witnessing increased adoption of a greater number of crypto assets.
3 Trends Shaping the Future of Securities and Exchanges Industry
Volatility fuels trading volume: The players in the industry are largely dependent on product and service portfolios for revenues. Major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services plus trading, and clearing systems services. Other revenue sources include data products, and financial indexes along with information and public company services. Maximization of transaction and clearing fees and lowering of transaction-based expenses drive profits. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players). Increasing focus on accelerating its non-trading revenue base, which includes market technology, listing and information revenues infuse dynamism in business profile.
Mergers and acquisitions: The industry continues to witness mergers and acquisitions with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, provide new products or services and enhance the value of their platform and the existing trade-related operations. Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants to maintain their domestic market share as well as fortify global footprint.
Adoption of technology: Focus on building a strategic economic market model via technological advancements and upgrade of products and services will help all exchanges to stay afloat amid changing industry dynamics. In the recent years, the players have launched a number of innovative technologies that rely on machine-learning, automation and algorithms designed to improve trading decisions while reducing trading inefficiencies, cyber threats and human errors.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #233, which places it in the bottom 8% of the 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been losing confidence in this group’s earnings growth potential. Evidently, the industry’s earnings estimate for the current year has moved down 1.3% since June 2021.
Before we present a few securities and exchanges stocks worth considering for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Securities and Exchanges industry has underperformed the broader Zacks Finance sector as well as the Zacks S&P 500 composite over the past year. The industry has gained 33.2% compared with the broader sector’s increase of 38.4% and the Zacks S&P 500 composite’s rise of 34.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing finance stocks, the industry is currently trading at 3.57X compared with the S&P 500’s 7.21X and the sector’s 3.36X.
Over the last five years, the industry has traded as high as 3.61X, as low as 1.88X and at the median of 2.6X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
4 Securities and Exchanges Stocks to Keep an Eye on
Nasdaq: Headquartered in New York, Nasdaq is a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services. It carries a Zacks Rank of 2. Its strategy of accelerating its non-trading revenue base, successfully maximizing opportunities as a technology and analytics provider, and growing core marketplace businesses as well as intensifying focus on Market Technology and Information Services businesses should continue to drive Nasdaq’s growth.
The Zacks Consensus Estimate for 2021 EPS indicates a rise of 18.8% while that for 2022 projects 2.1% increase from the year-ago figure. It came up with a four-quarter average surprise of 9.21%. The consensus estimate for 2021 and 2022 has risen 6.4% and 4.6%, respectively in the past 30 days.
Price and Consensus: NDAQ
OTC Markets Group : Headquartered in New York, this Zacks Rank #2 company engages in the financial market business in the United States and internationally. The company is poised to grow on the strength of growing subscriber base driving transactional revenues, price increases and a compelling portfolio.
The Zacks Consensus Estimate for 2021 EPS indicates a rise of 24.2%. It came up with a four-quarter average surprise of 35.73%. The expected long-term earnings growth is pegged at 9%.
Price and Consensus: OTCM
Cboe Global Markets: Based in Chicago, IL, this Zacks Rank #3 company is one of the largest stock exchange operators by volume in the United States and a globally for ETP trading. It carries a Zacks Rank of 3. The company is poised for growth given expanding product line across asset classes, broadening geographic reach, diversifying business mix with recurring revenues. and leveraging technology.
The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a rise of 4.6% and 2.6% respectively. It came up with a four-quarter average surprise of 3.8%. The consensus estimate for 2021 and 2022 has risen 3.2% and 2.4%, respectively in the past 30 days.
Price and Consensus: CBOE
CME Group: Headquartered in Chicago, IL, this Zacks Rank #3 company boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Efforts to expand futures products in emerging markets, non-transaction related opportunities, OTC offerings, cross-sell through alliances, strong global presence, and solid liquidity should drive CME Group’s growth.
The Zacks Consensus Estimate for 2022 EPS indicates a rise of 8.3%. It came up with a four-quarter average surprise of 1.57%.
Price and Consensus: CME
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4 Securities and Exchanges to Watch Out For Amid Industry Challenges
A compelling and diversified product portfolio helps drive revenues of Zacks Securities and Exchanges industry players. Increase in trading volumes, product expansion through prudent acquisitions and increased adoption of a greater number of crypto assets with increased interest across the entire cryptoeconomy.are expected to benefit Cboe Global Markets (CBOE - Free Report) , CME Group (CME - Free Report) , Nasdaq (NDAQ - Free Report) and OTC Markets Group Inc. (OTCM - Free Report) . Increasing focus on accelerating its non-trading revenue base, which includes market technology, listing and information revenues, infuse dynamism in the business profile of industry players. However, alterations in investment patterns and priorities, and compliance with regulations pose challenges.
About the Industry
The Zacks Securities and Exchanges industry comprises companies that operate electronic marketplaces, which facilitate the buying and selling of stocks, stock options, bonds or commodity contracts. Trading across a diverse range of products in multiple asset classes and geographies are facilitated by these players. These companies generate revenues from fees received from the listed companies on their exchanges. They also provide a range of data and listing services to global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, investments, risk management, desktops and connectivity solutions as well as corporate and ETF listing services on the cash equity exchanges of the industry players. The industry is also witnessing increased adoption of a greater number of crypto assets.
3 Trends Shaping the Future of Securities and Exchanges Industry
Volatility fuels trading volume: The players in the industry are largely dependent on product and service portfolios for revenues. Major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services plus trading, and clearing systems services. Other revenue sources include data products, and financial indexes along with information and public company services. Maximization of transaction and clearing fees and lowering of transaction-based expenses drive profits. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players). Increasing focus on accelerating its non-trading revenue base, which includes market technology, listing and information revenues infuse dynamism in business profile.
Mergers and acquisitions: The industry continues to witness mergers and acquisitions with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, provide new products or services and enhance the value of their platform and the existing trade-related operations. Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants to maintain their domestic market share as well as fortify global footprint.
Adoption of technology: Focus on building a strategic economic market model via technological advancements and upgrade of products and services will help all exchanges to stay afloat amid changing industry dynamics. In the recent years, the players have launched a number of innovative technologies that rely on machine-learning, automation and algorithms designed to improve trading decisions while reducing trading inefficiencies, cyber threats and human errors.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #233, which places it in the bottom 8% of the 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been losing confidence in this group’s earnings growth potential. Evidently, the industry’s earnings estimate for the current year has moved down 1.3% since June 2021.
Before we present a few securities and exchanges stocks worth considering for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Securities and Exchanges industry has underperformed the broader Zacks Finance sector as well as the Zacks S&P 500 composite over the past year. The industry has gained 33.2% compared with the broader sector’s increase of 38.4% and the Zacks S&P 500 composite’s rise of 34.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing finance stocks, the industry is currently trading at 3.57X compared with the S&P 500’s 7.21X and the sector’s 3.36X.
Over the last five years, the industry has traded as high as 3.61X, as low as 1.88X and at the median of 2.6X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
.jpg)
Price-to-Book (P/B) Ratio (TTM)
.jpg)
4 Securities and Exchanges Stocks to Keep an Eye on
We are presenting two Zacks Rank #2 (Buy) stock from the Securities and Exchanges industry. We are also presenting two stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nasdaq: Headquartered in New York, Nasdaq is a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services. It carries a Zacks Rank of 2. Its strategy of accelerating its non-trading revenue base, successfully maximizing opportunities as a technology and analytics provider, and growing core marketplace businesses as well as intensifying focus on Market Technology and Information Services businesses should continue to drive Nasdaq’s growth.
The Zacks Consensus Estimate for 2021 EPS indicates a rise of 18.8% while that for 2022 projects 2.1% increase from the year-ago figure. It came up with a four-quarter average surprise of 9.21%. The consensus estimate for 2021 and 2022 has risen 6.4% and 4.6%, respectively in the past 30 days.
Price and Consensus: NDAQ
OTC Markets Group : Headquartered in New York, this Zacks Rank #2 company engages in the financial market business in the United States and internationally. The company is poised to grow on the strength of growing subscriber base driving transactional revenues, price increases and a compelling portfolio.
The Zacks Consensus Estimate for 2021 EPS indicates a rise of 24.2%. It came up with a four-quarter average surprise of 35.73%. The expected long-term earnings growth is pegged at 9%.
Price and Consensus: OTCM
Cboe Global Markets: Based in Chicago, IL, this Zacks Rank #3 company is one of the largest stock exchange operators by volume in the United States and a globally for ETP trading. It carries a Zacks Rank of 3. The company is poised for growth given expanding product line across asset classes, broadening geographic reach, diversifying business mix with recurring revenues. and leveraging technology.
The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a rise of 4.6% and 2.6% respectively. It came up with a four-quarter average surprise of 3.8%. The consensus estimate for 2021 and 2022 has risen 3.2% and 2.4%, respectively in the past 30 days.
Price and Consensus: CBOE
CME Group: Headquartered in Chicago, IL, this Zacks Rank #3 company boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Efforts to expand futures products in emerging markets, non-transaction related opportunities, OTC offerings, cross-sell through alliances, strong global presence, and solid liquidity should drive CME Group’s growth.
The Zacks Consensus Estimate for 2022 EPS indicates a rise of 8.3%. It came up with a four-quarter average surprise of 1.57%.
Price and Consensus: CME