Nasdaq’s (NDAQ Quick QuoteNDAQ - Free Report) improving organic growth, focus on ramping up the on-trading revenue base, buyouts to capitalize on growing market opportunities, effective capital deployment and favorable growth estimates make it worth retaining in one’s portfolio.

NDAQ has a decent track record of beating estimates in the last three reported quarters of 2023. Return on equity was 21.6% in the trailing 12 months, better than the industry average of 12.4%.

Zacks Rank & Price Performance

Nasdaq currently carries a Zacks Rank #3 (Hold). Quarter to date, the stock has gained 13.4% compared with the industry’s rise of 11%.

Image Source: Zacks Investment Research

Optimistic Growth Projections

The Zacks Consensus Estimate for NDAQ’s 2023 earnings is pegged at $2.78 per share, indicating a 4.5% increase from the year-ago reported figure on 4.7% higher revenues of $3.8 billion. The expected long-term earnings growth is pegged at 3.5%.

The company’s bottom line has grown 13.6% over the last five years, better than the industry average of 10.5%.

Business Tailwinds

Nasdaq’s growth strategy focuses on generating more revenues from high-growth Market Technology and Investment Intelligence segments as well as redirecting R&D spending toward higher-growth products. NDAQ targets 5-7% long-term growth from a non-trading revenue base. The company remains focused on expanding its Anti-Financial Crime clientele as well as introducing new innovations to products and services that continue to drive performance.

Nasdaq has an impressive inorganic growth story. The buyout of Adenza Group, a premium software and technology company, will boost its Marketplace Technology and Anti-Financial Crime solutions. The transaction also strengthens offering across a wider spectrum of regulatory technology, compliance and risk management solutions.

The company’s annualized recurring revenues, as a percentage of 2023 proforma total revenues, are estimated to increase 60% from 56% in 2022 and Nasdaq’s Solutions Businesses, as a percentage of 2023 proforma total revenues, to 77% due to the addition of Adenza Group. It is also expected to improve Nasdaq’s Solutions Business medium-term organic revenue growth to 8-11%.

Given the immense opportunity offered by the cryptocurrency markets, NDAQ has been investing in proprietary data and migrating markets and SaaS solutions to the cloud to reap benefits.

Nasdaq noted that the anti-fin crime space has a total addressable market of $12.5 billion and is expected to witness a CAGR of 17% through 2024. Thus, the strategic acquisition of Verafin in February 2021 was targeted to consolidate Nasdaq's established reg tech leadership to create a global SaaS leader. Nasdaq aims 40-50% Saas revenues, as a percentage of total revenues by 2025.

NDAQ estimates strong growth from its index and analytics businesses, followed by moderate growth in its exchange data products across U.S. and Nordic equities. Nasdaq estimates 5-8% revenue organic growth in Investment Intelligence, 13-16% in Market Technology and 3-5% in Corporate Platform segments over the medium term.

Due to a change in corporate structure, NDAQ estimates to incur $115 million to $145 million in pretax charges, of which about 40% will be non-cash charges. Nonetheless, this will help unlock revenue synergies. Nasdaq estimates benefits in the form of combined annual run rate operating efficiencies and revenue synergies of at least $30 million by 2025.

Impressive Capital Payout

A diverse business model helps Nasdaq maintain a healthy balance sheet and cash position along with modest operating cash flow. Banking on this strength, NDAQ increased its dividend at a nine-year (2015-2023) CAGR of 6%. It has $2 billion remaining in its authorization kitty.

Nasdaq intends to pursue its existing capital deployment plan, including steadily increasing its dividend per share and dividend payout ratio, to achieve 35-38% within three to four years.

Stocks to Consider

Some better-ranked stocks from the finance sector are Cboe Global Markets (CBOE Quick QuoteCBOE - Free Report) , Coinbase Global (COIN Quick QuoteCOIN - Free Report) and Berkshire Hathaway Inc. (BRK.B Quick QuoteBRK.B - Free Report) .

CBOE has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 4.07%. In the past year, CBOE has gained 13.1%. 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 CBOE’s 2023 and 2024 earnings per share is pegged at $7.58 and $7.98, indicating a year-over-year increase of 9.4% and 4.6%, respectively.

COIN has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 62.95%. COIN has climbed 15.2% in the past year and carries a Zacks Rank #2 (Buy).  

The Zacks Consensus Estimate for COIN’s 2023 and 2024 earnings per share indicates a year-over-year increase of 91.7% and 29.3%, respectively.

Berkshire delivered a trailing four-quarter average earnings surprise of 0.20%. Year to date, the stock has risen 16.5%. It carries a Zacks Rank #2.

The Zacks Consensus Estimate for BRK.B’s 2023 and 2024 earnings suggests a year-over-year rise of 16.2% and 10.8%, respectively.