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Why Is MarketAxess (MKTX) Up 10.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for MarketAxess (MKTX - Free Report) . Shares have added about 10.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MarketAxess due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

MarketAxess Q3 Earnings Miss on Higher Expenses

MarketAxess reported third-quarter 2023 earnings per share of $1.46, which missed the Zacks Consensus Estimate by 2%. Moreover, the bottom line declined from $1.58 per share a year ago.

Total revenues increased 0.1% year over year to $172.3 million in the quarter under review. However, the top line missed the consensus mark by 0.6%.

The quarterly results received a blow from low credit spread volatility, an elevated expense level, deteriorating commission revenues and lower overall credit trading.The negatives were partially offset by solid Eurobonds’ performance and higher adoption of its Composite+ pricing engine.

Quarterly Operational Update

Commission revenues declined 1.7% year over year to $150.5 million in the third quarter and missed our estimate by 8.9%. Information services revenues registered a record $11.8 million, which increased 21.5% year over year and beat our estimate by 8.3% on the back ofstrong adoption of the company’s algorithmic pricing engine, Composite+. Meanwhile, post-trade services revenues of $9.8 million increased 9.3% year over year in the quarter under review, beating our estimate of $9.1 million.

Total expenses of $105.4 million escalated 10% year over year, surpassing our estimate of $105.1 million. The year-over-year growth was primarily due to increased employee compensation and benefits, technology and communication expenses, and marketing and occupancy costs.

MarketAxess reported an operating income of $66.9 million, which decreased 12.3% year over year in the third quarter.

Trading Volumes

MarketAxess’ high-grade trading volume declined 0.5% year over year to $326.3 billion, missing our estimate by 11.3%. The average daily volume (ADV) of the same product category rose 1.1% year over year to $5,179 million but missed our estimate by 10.2%.

Other credit trading volume of $25,185 million rose 4.2% year over year, whereas ADV of the same product category jumped 1.7% year over year to $400 million in the third quarter.

The emerging markets’ trading volume and ADV rose 6.3% and 8%, respectively, each on a year-over-year basis. Trading volume and ADV of MKTX’s Eurobonds rose 18.3% and 18.2%, respectively, year over year.

Total credit trading volume increased 0.3% year over year to $704.3 billion in the quarter under review, while ADV reached $11.2 billion (up 1.7% year over year). Total rates’ trading volume and ADV declined 12.8% and 11.4%, respectively, year over year.

Balance Sheet (as of Sep 30, 2023)

MarketAxess exited the third quarter of 2023 with cash and cash equivalents of $420.5 million, which decreased from the 2022-end figure of $430.7 million. Total assets of $1,737.5 million increased from $1,607.8 million at 2022-end.

The company had no outstanding borrowing under its credit facility at the third-quarter end. Total stockholders’ equity rose from $1,081.1 million at 2022-end to $1,191 million at the third-quarter end.

Cash Flows

MarketAxess generated cash from operations of $79.2 million in the third quarter, down from $85.1 million a year ago. However, free cash flow of $74.8 million increased from $70 million a year ago.

Dividend Update

Management approved a quarterly cash dividend of 72 cents per share, which will be paid out on Nov 22, to shareholders of record as of Nov 8.

2023 Guidance

Management revised expense guidance upward between $432 million and $438 million for this year, the mid-point of which indicates an 11.1% increase from the 2022 reported figure.

Capital expenditure was estimated between $52 million and $58 million for 2023.

The effective tax rate is likely to be 25-26%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, MarketAxess has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MarketAxess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

MarketAxess is part of the Zacks Securities and Exchanges industry. Over the past month, Nasdaq (NDAQ - Free Report) , a stock from the same industry, has gained 10.9%. The company reported its results for the quarter ended September 2023 more than a month ago.

Nasdaq reported revenues of $940 million in the last reported quarter, representing a year-over-year change of +5.6%. EPS of $0.71 for the same period compares with $0.68 a year ago.

For the current quarter, Nasdaq is expected to post earnings of $0.68 per share, indicating a change of +6.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.

Nasdaq has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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