The Zacks Securities and Exchanges industry comprises companies that operate physical or electronic marketplaces, which facilitate the buying and selling of stocks, stock options, bonds or commodity contracts.
These companies generate revenues from the fees received from the listed companies on their exchanges. Industry players 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, desktops and connectivity solutions as well as corporate and ETF listing services on the company’s cash equity exchanges.
Here are the industry’s three major themes.
- Diverse product offerings remain the primary growth catalyst. Demand is boosted by investors’ optimism and interest of corporates to access public capital. The industry’s product innovation efforts have been helping it better cater to the derivatives industry’s demands and complement the core product lines. This, in turn, has been aiding key industry players to strengthen their market position and global reach.
- The players in the Securities and Exchanges 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, 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 drives transaction and clearing fees (a major component of the top line of industry players). Notably, increased market volatility boosts performance of the industry players.
- 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. Additionally, strategic buyouts have led to a diversified product portfolio and industry participants to maintain their domestic market share as well as fortify global footprint.
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 #108 which places it in the top 42% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects favorable 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 gaining confidence in this group’s earnings growth potential. Evidently, the industry’s earnings estimate for the current year has inched up 0.4% in a month’s time.
Before we present a few securities and exchanges stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Securities and Exchanges industry has outperformed the Zacks S&P 500 composite and the broader Zacks Finance sector over the past year. The industry has rallied 22.5% compared with the S&P 500’s rise of 6.7% and the broader sector’s increase of 0.1% in the said time frame.
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 3.13X compared with the S&P 500’s 4.02X and the sector’s 2.67X.
Over the last five years, the industry has traded as high as 3.17X, as low as 2.61X and at the median of 2.83X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Expansion of product portfolio is likely to drive the performance of industry players. Increase in trading volumes and product expansion through prudent acquisitions are expected to provide a cushion as well. Low reliance on debt is an added advantage.
However, alterations in investment patterns and priorities, intense competition with the wave of mergers and acquisitions in the stock exchange industry and compliance with regulations pose challenges.
The Zacks Securities and Exchanges space currently has just one stock carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MarketAxess Holdings Inc. (MKTX - Free Report) : For this New York-domiciled company, the Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 1.4%. The company has an estimated long-term earnings growth rate of 5%. It came up with average positive surprise of 4.57% in the previous four reported quarters.
Price and Consensus: MKTX
This apart, we are presenting four stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to for the time being.
Cboe Global Markets, Inc. (CBOE - Free Report) : Headquartered in Chicago, the company has an estimated long-term earnings growth rate of 9%. It came up with average beat of 8.27% in the trailing four reported quarters.
Price and Consensus: CBOE
Nasdaq, Inc. (NDAQ - Free Report) : With respect to this New York-based company, the Zacks Consensus Estimate for 2019 EPS indicates year-over-year improvement of 0.2%. The company has an expected long-term earnings growth rate of 7.4%. The average earnings surprise is delivered at 1.50% in the last four reported quarters.
Price and Consensus: NDAQ
CME Group Inc. (CME - Free Report) : For this Chicago, IL-based company, the Zacks Consensus Estimate for 2019 EPS indicates a 1.1% year-over-year increase. The company has estimate projected long-term earnings growth rate of 6.6%. It pulled off average positive surprise of 1.42% for the preceding four reported quarters.
Price and Consensus: CME
Intercontinental Exchange Inc. (ICE - Free Report) : The Zacks Consensus Estimate for 2019 EPS of this Atlanta, GA, company indicates a year-over-year rise of 0.3%. The company long-term earnings are projected to grow at a rate of 8.2%. It pulled off average positive surprise of 3.23% in the preceding four reported quarters.
Price and Consensus: ICE