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5 Securities and Exchanges in Focus Despite Industry Headwinds
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A compelling and diversified product portfolio helps drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions and an increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange Inc. (ICE - Free Report) , CME Group (CME - Free Report) , Cboe Global Markets (CBOE - Free Report) , Nasdaq (NDAQ - Free Report) and MarketAxess Holdings (MKTX - Free Report) . Increasing focus on accelerating their 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. These players facilitate trading across a diverse range of products in multiple asset classes and geographies. 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. The 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 its 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 maintain their domestic market share as well as fortify their global footprint.
Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services will help all exchanges to stay afloat amid changing industry dynamics. In 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, thus accelerating trading frequency.
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 #187, which places it in the bottom 26% 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 2.8% in a year’s time.
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 lost 5% against the broader sector’s increase of 4.5% and the Zacks S&P 500 composite’s rise of 6.9% 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 3.49X compared with the S&P 500’s 6.61X and the sector’s 3.33X.
Over the last five years, the industry has traded as high as 4.53X, as low as 2.3X and at the median of 3.11X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
5 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. 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 its focus on Market Technology and Information Services businesses should continue to drive Nasdaq’s growth.
The Zacks Consensus Estimate for 2022 EPS indicates a rise of 4.8% while that for 2023 projects an 8.5% increase from the year-ago figure. It came up with a four-quarter average surprise of 8.6%. The consensus estimate for 2022 and 2023 has moved 0.1% and 0.4% north, respectively in the past seven days. The expected long-term earnings growth rate is pegged at 12.1%, better than the industry average of 10%.
Price and Consensus: NDAQ
Intercontinental Exchange: Headquartered in Atlanta, GA, ICE is a leading global operator of regulated exchanges, clearing houses and listings venues and a provider of data services for commodity, financial, fixed income and equity markets. ICE is poised to grow banking on an expansive product and service portfolio and strength in global data services. Accelerated digitization taking place in the U.S. residential mortgage industry should favor Mortgage technology. ICE boasts the largest mortgage network.
The Zacks Consensus Estimate for 2022 EPS indicates a rise of 9.1%. It came up with a four-quarter average surprise of 2.57%. The expected long-term earnings growth rate is pegged at 9%.
Price and Consensus: ICE
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 globally for ETP trading. It carries a Zacks Rank of 3. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach, a diversifying business mix with recurring revenues. and leveraging technology.
The Zacks Consensus Estimate for 2022 and 2023 EPS indicates a rise of 3% and 5.2% respectively. It came up with a four-quarter average surprise of 6.2%. The consensus estimate for 2022 and 2023 has moved 0.2% and 0.3% up, respectively in the past seven 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 and 2023 EPS indicates an increase of 14.7% and 6.2% respectively. It came up with a four-quarter average surprise of 2.36%. The expected long-term earnings growth rate is pegged at 8.2%. The consensus estimate for 2022 and 2023 has moved 1.4% and 1.2% north, respectively in the past seven days.
Price and Consensus: CME
MarketAxess Holdings: New York-based MarketAxess Holdings is a leading multi-dealer trading platform that offers institutional investors access to global liquidity. Increasing commission received on trading volumes, continuous product upgrades and introduction leading to higher bond trading volumes, strategic alliances and buyouts or technologies that enable it to enter new markets and provide new products or services bode well for growth.
The Zacks Consensus Estimate for 2022 and 2023 EPS indicates a rise of 6.4% and 13.4%, respectively. It came up with a four-quarter average earnings surprise of 1.93%.
Price and Consensus: MKTX
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5 Securities and Exchanges in Focus Despite Industry Headwinds
A compelling and diversified product portfolio helps drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions and an increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange Inc. (ICE - Free Report) , CME Group (CME - Free Report) , Cboe Global Markets (CBOE - Free Report) , Nasdaq (NDAQ - Free Report) and MarketAxess Holdings (MKTX - Free Report) . Increasing focus on accelerating their 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. These players facilitate trading across a diverse range of products in multiple asset classes and geographies. 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. The 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 its 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 maintain their domestic market share as well as fortify their global footprint.
Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services will help all exchanges to stay afloat amid changing industry dynamics. In 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, thus accelerating trading frequency.
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 #187, which places it in the bottom 26% 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 2.8% in a year’s time.
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 lost 5% against the broader sector’s increase of 4.5% and the Zacks S&P 500 composite’s rise of 6.9% 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 3.49X compared with the S&P 500’s 6.61X and the sector’s 3.33X.
Over the last five years, the industry has traded as high as 4.53X, as low as 2.3X and at the median of 3.11X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
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5 Securities and Exchanges Stocks to Keep an Eye on
We are presenting five Zacks Rank #3 (Hold) stocks from the Securities and Exchanges 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. 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 its focus on Market Technology and Information Services businesses should continue to drive Nasdaq’s growth.
The Zacks Consensus Estimate for 2022 EPS indicates a rise of 4.8% while that for 2023 projects an 8.5% increase from the year-ago figure. It came up with a four-quarter average surprise of 8.6%. The consensus estimate for 2022 and 2023 has moved 0.1% and 0.4% north, respectively in the past seven days. The expected long-term earnings growth rate is pegged at 12.1%, better than the industry average of 10%.
Price and Consensus: NDAQ
Intercontinental Exchange: Headquartered in Atlanta, GA, ICE is a leading global operator of regulated exchanges, clearing houses and listings venues and a provider of data services for commodity, financial, fixed income and equity markets. ICE is poised to grow banking on an expansive product and service portfolio and strength in global data services. Accelerated digitization taking place in the U.S. residential mortgage industry should favor Mortgage technology. ICE boasts the largest mortgage network.
The Zacks Consensus Estimate for 2022 EPS indicates a rise of 9.1%. It came up with a four-quarter average surprise of 2.57%. The expected long-term earnings growth rate is pegged at 9%.
Price and Consensus: ICE
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 globally for ETP trading. It carries a Zacks Rank of 3. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach, a diversifying business mix with recurring revenues. and leveraging technology.
The Zacks Consensus Estimate for 2022 and 2023 EPS indicates a rise of 3% and 5.2% respectively. It came up with a four-quarter average surprise of 6.2%. The consensus estimate for 2022 and 2023 has moved 0.2% and 0.3% up, respectively in the past seven 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 and 2023 EPS indicates an increase of 14.7% and 6.2% respectively. It came up with a four-quarter average surprise of 2.36%. The expected long-term earnings growth rate is pegged at 8.2%. The consensus estimate for 2022 and 2023 has moved 1.4% and 1.2% north, respectively in the past seven days.
Price and Consensus: CME
MarketAxess Holdings: New York-based MarketAxess Holdings is a leading multi-dealer trading platform that offers institutional investors access to global liquidity. Increasing commission received on trading volumes, continuous product upgrades and introduction leading to higher bond trading volumes, strategic alliances and buyouts or technologies that enable it to enter new markets and provide new products or services bode well for growth.
The Zacks Consensus Estimate for 2022 and 2023 EPS indicates a rise of 6.4% and 13.4%, respectively. It came up with a four-quarter average earnings surprise of 1.93%.
Price and Consensus: MKTX
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