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MarketAxess Eyes Growth in European Markets Despite Risks

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On Nov 14, 2016, we have issued an updated research report on MarketAxess Holdings Inc. (MKTX - Free Report) .

The company recently released its third-quarter 2016 earnings of 82 cents per share that has comfortably surpassed the Zacks Consensus Estimate by 5%. The bottom line also improved approximately 37% year over year on the back of solid revenue growth. We note that various organic and inorganic growth initiatives undertaken by the company have helped it strengthen its operating leverage. Strategic mergers and alliances not only boosted the company’s top line but also expanded its operating margin over the years. The third-quarter outperformance clearly evidences the trend with 22% year-over-year growth in total revenue.

The European Trading Business of MarketAxess is another area of strength for the company. Robust growth in trading volumes over the past few quarters continues to lend the company a competitive edge. In fact, the company’s European client volume surged 70% and EM Local Markets trading volume increased 86% year over year in the third quarter. The corporate bond buying program also resulted in tighter U.S. and European credit spreads. These clearly indicate that the company is on track to establish a solid foothold in Europe.

Moreover, a sturdy capital position continues to support the company. Growing operating cash inflow not only enables the company to maintain a commendable level of liquidity but also helps it to remain solvent. Several capital deployment strategies like share buybacks, dividend payments have also been implemented successfully on the back of solid cash flow. During the third quarter the company bought back shares worth $8.5 million with $11.2 million remaining under its authorization. In Oct 2016, the board approved an additional $50 million of share repurchase.

However, expense management remains an area of concern for MarketAxess. Given that MarketAxess intends to invest in people and systems to support its growth initiatives, the expenses are likely to rise further, in turn, putting pressure on the bottom line. Also, stiff competition from new entrants has been reducing the company’s market share.

Zacks Rank and Stocks to Consider

MarketAxess presently carries Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Investors may also consider other players from the finance sector like Discover Financial Services (DFS - Free Report) , MoneyGram International Inc (MGI - Free Report) and First American Financial Corporation (FAF - Free Report) . All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First American Financial has reported beat through out last four straight quarters with an average of 14.32%.

MoneyGram delivered positive surprise in three of the last four quarters with an average beat of 25.31%

Discover Financial also reported beat in three of the last four quarters with an average beat of 0.12%.

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