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Solid Near-Term Outlook for Securities and Exchanges Industry
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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
• The industry continues to witness mergers and acquisitions as companies seek to evaluate opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These will enable them to penetrate untapped markets, provide new products or services or otherwise enhance the value of their platform and the existing trade-related operations. Also players have been coming out with a diverse suite of product offerings to attract clients and gain a decent market share. This, in turn, has been aiding key industry players to leverage their market position and global reach.
• 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, 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). In recent years, the concerned players launched a number of innovative technologies that rely on machine-learning, automation and algorithms designed to improve the trading decisions while reducing trading inefficiencies and human errors.
• 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 help 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 43% of 253 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 from this group’s earnings growth potential. Evidently, the industry’s earnings estimate for the current year has moved 1.5% up in six months’ 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 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 25.8% against the Zacks S&P 500’s composite gain of 2.5% and the broader sector’s decline of 9.8%, 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 3.21X compared with the S&P 500’s 3.69X and the sector’s 2.23X.
Over the last five years, the industry has traded as high as 3.54X, as low as 1.84X and at the median of 2.56X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Bottom Line
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 sporting a Zacks Rank #1 (Strong Buy) and three stocks carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MarketAxess Holdings Inc. (MKTX - Free Report) : This New York-domiciled leading multi-dealer trading platform provides institutional investors with access to global liquidity in products like U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives, and other fixed-income securities. It carries a Zacks Rank of 2.
The Zacks Consensus Estimate for 2020 EPS indicates a rise of 11.9% and a 12.1% increase for 2021 from the year-ago reported figure. It came up with a four-quarter positive surprise of 0.53%, on average, with an earnings beat in three of the trailing four quarters and missed in one.
Price and Consensus: MKTX
Nasdaq, Inc. (NDAQ - Free Report) : This New York-based leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2020 and 2021 EPS suggest an improvement of 9.6% and 7.95%, respectively, from the year-ago reported figure. The average four-quarter beat is 3.33%.
Price and Consensus: NDAQ
CME Group Inc. (CME - Free Report) : This Zacks #3 Ranked largest futures exchange in the world in terms of trading volume as well as notional value traded is based in Chicago, IL. The Zacks Consensus Estimate for 2020 EPS implies an increase of 9.7% from the prior-year reported number. It pulled off a positive surprise of 2.27%, on average, in three of the preceding four quarters . It missed estimates in one quarter.
Price and Consensus: CME
Intercontinental Exchange Inc. (ICE - Free Report) : The Zacks Consensus Estimate for 2020 and 2021 EPS of this Atlanta, GA-headquartered 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 indicates growth of 8.51% and 9.98%, respectively, from the year-earlier reported figure. The company came up with a four-quarter positive surprise of 4.28%, on average.
Price and Consensus: ICE
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Solid Near-Term Outlook for Securities and Exchanges Industry
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
• The industry continues to witness mergers and acquisitions as companies seek to evaluate opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These will enable them to penetrate untapped markets, provide new products or services or otherwise enhance the value of their platform and the existing trade-related operations. Also players have been coming out with a diverse suite of product offerings to attract clients and gain a decent market share. This, in turn, has been aiding key industry players to leverage their market position and global reach.
• 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, 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). In recent years, the concerned players launched a number of innovative technologies that rely on machine-learning, automation and algorithms designed to improve the trading decisions while reducing trading inefficiencies and human errors.
• 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 help 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 43% of 253 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 from this group’s earnings growth potential. Evidently, the industry’s earnings estimate for the current year has moved 1.5% up in six months’ 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 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 25.8% against the Zacks S&P 500’s composite gain of 2.5% and the broader sector’s decline of 9.8%, 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 3.21X compared with the S&P 500’s 3.69X and the sector’s 2.23X.
Over the last five years, the industry has traded as high as 3.54X, as low as 1.84X and at the median of 2.56X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Bottom Line
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 sporting a Zacks Rank #1 (Strong Buy) and three stocks carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MarketAxess Holdings Inc. (MKTX - Free Report) : This New York-domiciled leading multi-dealer trading platform provides institutional investors with access to global liquidity in products like U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives, and other fixed-income securities. It carries a Zacks Rank of 2.
The Zacks Consensus Estimate for 2020 EPS indicates a rise of 11.9% and a 12.1% increase for 2021 from the year-ago reported figure. It came up with a four-quarter positive surprise of 0.53%, on average, with an earnings beat in three of the trailing four quarters and missed in one.
Price and Consensus: MKTX
Nasdaq, Inc. (NDAQ - Free Report) : This New York-based leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2020 and 2021 EPS suggest an improvement of 9.6% and 7.95%, respectively, from the year-ago reported figure. The average four-quarter beat is 3.33%.
Price and Consensus: NDAQ
CME Group Inc. (CME - Free Report) : This Zacks #3 Ranked largest futures exchange in the world in terms of trading volume as well as notional value traded is based in Chicago, IL. The Zacks Consensus Estimate for 2020 EPS implies an increase of 9.7% from the prior-year reported number. It pulled off a positive surprise of 2.27%, on average, in three of the preceding four quarters . It missed estimates in one quarter.
Price and Consensus: CME
Intercontinental Exchange Inc. (ICE - Free Report) : The Zacks Consensus Estimate for 2020 and 2021 EPS of this Atlanta, GA-headquartered 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 indicates growth of 8.51% and 9.98%, respectively, from the year-earlier reported figure. The company came up with a four-quarter positive surprise of 4.28%, on average.
Price and Consensus: ICE
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>