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 the increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange Inc. ( ICE Quick Quote ICE - Free Report) , CME Group ( CME Quick Quote CME - Free Report) , Cboe Global Markets ( CBOE Quick Quote CBOE - Free Report) , Nasdaq ( NDAQ Quick Quote NDAQ - Free Report) and MarketAxess Holdings ( MKTX Quick Quote MKTX - Free Report) . Increasing focus on accelerating their non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profile of the 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 stocks, stock options, bonds or commodity contracts. They facilitate trading across a diverse range of products in multiple asset classes and geographies. They 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 witnessing increased adoption of crypto assets. Yet, the players have to comply with a number of regulations, posing challenges.
3 Trends Shaping the Future of the Securities and Exchanges Industry
: 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 the 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 the non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profiles of the industry participants. Volatility Fueling Trading Volume : 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, offer new products or services, and enhance the value of their platforms and 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. Mergers and acquisitions : 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. Players are also investing in automating non-trading operations that play an important part in revenue generation for the companies. Continuous Investment in Technology Zacks Industry Rank Indicates Bright Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks
Finance sector. It carries a Zacks Industry Rank #73, which places it in the top 29% 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 top 50% of the Zacks-ranked industries is a result of a positive 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. 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 slipped 36.4% compared with the broader sector’s dip of 12.4% and the Zacks S&P 500 composite’s decline of 16.8% 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 2.82X compared with the S&P 500’s 5.53X and the sector’s 3.37X.
Over the last five years, the industry has traded as high as 4.77X, as low as 2.28X and at the median of 3.24X, 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
We are presenting one Zacks Rank #1 (Strong Buy) company and four Zacks Rank #3 (Hold) stocks from the Securities and Exchanges industry.
Cboe Global Markets: Based in Chicago, IL, Cboe Global, currently sporting Zacks Rank #1, is one of the largest stock exchange operators by volume in the United States and globally for ETP trading. 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 the company’s 2022 and 2023 EPS indicates year-over-year increases of 12.1% and 3%, respectively. It came up with a four-quarter average surprise of 4.95%. The consensus estimate for 2022 has moved up by a cent in the past seven days. Price and Consensus: CBOE 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 growth. NDAQ currently carries Zacks Rank #3. The Zacks Consensus Estimate for the company’s 2022 EPS indicates a rise of 6.4% from the year-ago reported figure, while that for 2023 suggests a 5.2% year-over-year increase. It came up with a four-quarter average surprise of 5.88%. The expected long-term earnings growth rate is pegged at 4.7%. The consensus estimate for the company’s 2022 EPS has moved 1 cent north in the past seven days. 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 in the U.S. residential mortgage industry should favor Mortgage technology. ICE, currently carrying Zacks Rank #3, boasts the largest mortgage network. The Zacks Consensus Estimate for the company’s 2022 EPS indicates a rise of 4.1% from the year-ago reported figure, while that for 2023 suggests a 6.3% year-over-year increase. It came up with a four-quarter average surprise of 2.33%. The expected long-term earnings growth rate is pegged at 7%. The consensus estimates for the company’s 2022 EPS has moved 2 cents north in the past 30 days. Price and Consensus: ICE CME Group: Headquartered in Chicago, IL, CME Group 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 this Zacks Rank #3 company’s growth. The Zacks Consensus Estimate for the company’s 2022 and 2023 EPS indicates year-over-year increases of 19.3% and 4.4%, respectively. It came up with a four-quarter average surprise of 2.98%. The expected long-term earnings growth rate is pegged at 7.8%. The consensus estimates for the company’s 2022 and 2023 have moved 0.4% and 0.1% north in the past 30 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 commissions received on trading volumes, continuous product upgrades and introduction leading to higher bond trading volumes, and strategic alliances and buyouts or technologies that enable it to enter new markets and provide new products or services bode well for this Zacks Rank #3 company. The Zacks Consensus Estimate for the company’s 2023 EPS indicates a year-over-year rise of 15.1%. It came up with a four-quarter average earnings surprise of 1.92%. The consensus estimates for the company’s 2022 and 2023 EPS have moved 0.5% and 2.7% north in the past 30 days. Price and Consensus: MKTX