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Nasdaq (NDAQ) Gains 20% YTD: Will the Rally Continue?

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Nasdaq (NDAQ - Free Report) shares have gained 20.3% year to date compared with the industry's rally of 9.1% and the Finance sector’s decrease of 4.2%. The Zacks S&P 500 composite has risen 16.9% in the same time frame. With market capitalization of $21.2 billion, average volume of shares traded in the last three months was 0.9 million.

Focus on Market Technology and Information Services businesses, improving operating leverage and solid capital position continue to drive Nasdaq. The company has a solid track of delivering earnings beat in the last seven quarters.

The company has been continually improving its return on equity (ROE) since 2014.Its ROE of 17.2% in the trailing 12 months was better than the industry average of 11.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.  The Zacks Rank #2 (Buy) leading provider of trading, clearing, marketplace technology, regulatory, securities listing and information  targets double-digit total shareholders return.

Will the Bull Run Continue?

The Zacks Consensus Estimate for 2021 earnings has moved up 0.2%% in the past seven days, reflecting analysts’ optimism. The consensus estimate indicates year-over-year increase of 1.3%.

The company boasts significant and leading positions in large, high growth markets like Index, Analytics, Market Technology, and IR & ESG Services.

Nasdaq has been effectively accelerating its non-trading revenue base, which is fueling organic growth. It projects organic revenue growth of 8-11% in Market Technology, 5-8% in Information Services and 3-5% in Corporate Services over the medium term.  It has considerably increased scale in Market Technology with revenues growing 45% since 2016.

Nasdaq has invested $1.2 billion in growth platforms and targets a significant share of more than $22 billion addressable market.

The company expects 5% to 7% organic revenue growth from non-trading segments over the medium term against about 3% rise in operating expense, thus improving operating leverage. Its non GAAP operating margin has expanded 400 basis points since 2016.

It targets 5% to 8% of revenues generated from new trading offerings and products by 2025.

Nasdaq boasts a healthy balance sheet and cash position along with modest operating cash flow from its diverse business model. With no long term debt maturities until 2023, it has been effectively improving leverage.

With respect to enhancing shareholders value, the company has increased dividend at a five-year CAGR (2016-2020) of 14%. With a payout of 39%, its dividend yield of 1.5% is higher than the industry average of 1.4%. The company also had $446 million remaining under its share repurchase authorization as of Sep 30, 2020.

Other Stocks to Consider

Some other top-ranked companies from the finance sector are MarketAxess Holdings (MKTX - Free Report) , OTC Markets Group (OTCM - Free Report) and The Allstate Corporation (ALL - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarketAxess delivered a positive earnings surprise of 2.30% in the last reported quarter.
OTC Markets Group delivered a positive earnings surprise of 12.12% in the last reported quarter.

Allstate delivered a positive earnings surprise of 66.10% in the last reported quarter.

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