On Aug 11, we issued an updated research report on MarketAxess Holdings Inc. (MKTX - Free Report) , a provider of electronic trading network for the institutional market in U.S. credit products.
While MarketAxess’ growth strategy has led to noticeable top and bottom-line growth, escalating costs remain a significant headwind. Total expenses increased at 11% on average from 2013-2016, thereby weighing on the company’s margins and by 6.4% in the first half of 2017.
We estimate the company’s expenses to rise over the coming quarters given its ongoing investments in several areas including trading platform, new protocols and infrastructure as well as headcount additions. Notably, for 2017, the company anticipates total expenses in the range of $192-$208 million. The midpoint of this range reflects about 12% year-over-year increase in expenses.
Over the past six months, shares of MarketAxess have returned 3% underperforming the gain of 8.5% logged by the industry. It also fared poorly compared with returns of 22.2%, 10.4% and 7.4% for CBOE Holdings, Inc. (CBOE - Free Report) , Intercontinental Exchange, Inc. (ICE - Free Report) and Nasdaq Inc. (NDAQ - Free Report) , respectively. Given the headwinds faced by the company, its shares are expected to remain under pressure in the coming quarters.
During the most recently reported quarter, the company’s earnings of $1.10 per share beat the Zacks Consensus Estimate by 19.5% on higher trading volumes. Also, the bottom line improved 13.6% from the year-ago quarter.
Nevertheless, MarketAxess's valuation looks stretched at the current level. Looking at the company’s one-forward price-to-earnings ratio, investors might not want to pay any further premium. The company currently has a one-year forward P/E ratio of 49 which is above its median range of 40. It is also higher than the one-year forward P/E ratio of 24.12 for the industry and 19.56 for the S&P 500.
MarketAxess carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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