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Nasdaq (NDAQ) Rallies 60% YTD: More Room for Upside Left?

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Shares of Nasdaq Inc. (NDAQ - Free Report) have rallied 59.6% year to date, outperforming the industry’s increase of 27.1% and the Finance sector’s increase of 21.3%. The S&P 500 composite index has risen 26.6% in the said time frame. With a market capitalization of $34.1 billion, the average volume of shares traded in the last three months was 0.8 million.

Zacks Investment ResearchImage Source: Zacks Investment Research

Accelerating organic growth, focus on ramping up on-trading revenue base, strategic buyouts to capitalize on growing markets opportunities, effective capital deployment and upbeat guidance continue to drive Nasdaq.

This Zacks Rank #3 (Hold) leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services has a stellar track record of beating estimates in the last 11 quarters.

Return on equity of 18.8% is higher than the industry average of 13.5%, reflecting efficient utilization of shareholders’ fund. Nasdaq targets double-digit total shareholders return.

Can NDAQ Stock Retain the Momentum?

The Zacks Consensus Estimate for 2022 earnings indicates a year-over-year improvement of 3.9% on 4.7% higher revenues. The expected long-term earnings growth rate is pegged at 12.9%, better than the industry average of 9.5%. The consensus estimate has moved 0.3% north in the past seven days, reflecting analysts’ optimism.

In a constant endeavor to accelerate organic growth, Nasdaq remains on track regarding its goals of maximizing opportunities as an innovative analytics and technology partner in the capital markets, developing and deploying marketplace economy technology strategy and consolidating its competitive edge in its core businesses. NDAQ estimates growth from its index and analytics businesses followed by moderate growth in its exchange data products across U.S. and Nordic equities. Nasdaq also partnered with a group of leading banks in the private market space to boost Nasdaq Private Market.

Nasdaq noted that the anti fin crime space has a total addressable market of 12.5 billion.  It is expected to witness a CAGR of 17% through 2024. The acquisition of Verafin in February 2021 is thus a strategic fit as the combination will complement Nasdaq's established reg tech leadership to create a global SaaS leader.

Nasdaq remains focused on accelerating growth with business repositioning. The divestiture of non-core assets fetched $700 million. Capital spending has been shifted toward higher-growth products at Market Technology and Information Services businesses, which offer the biggest growth opportunities. Technology expansion with SMARTS surveillance in non-financial markets reflects the company’s focus on emerging opportunities in the cryptocurrency markets.

Nasdaq boasts a healthy balance sheet and cash position along with modest operating cash flow from its diverse business model. Free cash flow yield of 3.7% is better than the S&P 500 average of 4.3%.

Banking on stable cash flow, Nasdaq has increased dividends in the last eight years at a CAGR of 19.5% with a payout ratio of 35%. The dividend yield is 1.1%, better than the industry average of 1%, making the stock an attractive pick for yield-seeking investors. NDAQ had $984 million remaining under its share repurchase authorization as of Sep 30, 2021.

Upbeat Guidance

Nasdaq estimates in 2025 at Market Technology organic revenues to witness a three-to-five-year CAGR of 13-19%, 5-8% at Investment intelligence, 3-5% at Corporate Platform and 6-9% at Solutions segment.

The non-trading revenue base is estimated to grow 5-7% over the long term.

Nasdaq targets return on invested capital of more than 10% over the medium to long term

Stocks to Consider

Some better-ranked stocks include OTC Markets Group (OTCM - Free Report) , Intercontinental Exchange (ICE - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) .

The Zacks Consensus Estimate for OTC Markets Group’s 2022 earnings has moved up 6.9% in the past 30 days. The expected long-term earnings growth rate is pegged at 9%.  It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Intercontinental’s 2022 earnings has moved up 0.7% in the past seven days and implies a 9.9% year-over-year increase. The expected long-term earnings growth rate is pegged at 10.3%, better than the industry average of 9.5%. It carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for 2022 earnings of Cincinnati Financial has moved 5% north in the past 60 days. Cincinnati Financial delivered a four-quarter average earnings surprise of 40.05% and has an impressive VGM Score of A.

Shares of OTC Markets, Intercontinental and Cincinnati Financial have gained 65.7%, 20.6% and 31.2%, respectively, year to date.