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Will Nasdaq (NDAQ) Miss Earnings Estimates on Lower Volumes?

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Leading exchange operator Nasdaq Group Inc. (NDAQ - Free Report) is scheduled to release second-quarter 2014 financial results before the opening bell on Jul 24.

In the last reported quarter, the company delivered a positive earnings surprise of 1.4%, although the four-quarter trailing average beat stands at 2.7%. Let's see how things are shaping up for this announcement.

Factors at Play

Nasdaq has faced challenges from intense price competition, currency fluctuations and muted demand during second-quarter 2014 that lowered overall volumes. Even the slightly improved rate per contract is unlikely to give any respite to the top line. Order intakes and new listings are also likely to suffer due to competitive pressure.

Moreover, while fixed income volume has been fluctuating in the U.S. over the past months, it has declined in Europe (from Nasdaq NLX) declined in the second quarter. Furthermore, equity options in the U.S. and derivative volumes in Europe witnessed declines of about 9% and 22%, respectively, during the quarter.

Furthermore, interest rate volatility and increased debt costs amid heightened market competition and higher expenses pose operational and financial risks. These were reflected in the company’s operating margins that deteriorated in the past quarters.

All these factors, amid sluggish industry trends, raise jitters about an earnings beat this season. However, an anticipated total debt-to-EBITDA ratio of about 2.5x by mid-2014 should help resume share repurchases, which lay shelved for almost a year now. Meanwhile, growth from acquisitions is likely to create additional sales opportunities in the long run.

Earnings Whispers?

Our proven model shows that Nasdaq is not likely to beat earnings as it lacks the required combination of two key components.

Zacks ESP: Nasdaq has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of 67 cents per share and the Zacks Consensus Estimate of 68 cents, is -1.47%.

Zacks Rank: Nasdaq has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) from going into an earnings announcement. 

The combination of Nasdaq’s Zacks Rank #4 and -1.47% ESP deter us from being confident of an earnings beat.

Other Stocks to Consider

Here are some other financial companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter: 

Everest Re Group Ltd. (RE - Free Report) has Earnings ESP of +6.0% and a Zacks Rank #2 (Buy).

Visa Inc. (V - Free Report) has Earnings ESP of +1.0% and a Zacks Rank #2.

Moody’s Corp. (MCO - Free Report) has Earnings ESP of +6.1% and a Zacks Rank #3 (Hold).

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Nasdaq, Inc. (NDAQ) - free report >>

Visa Inc. (V) - free report >>

Moody's Corporation (MCO) - free report >>

Everest Re Group, Ltd. (RE) - free report >>

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