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NDAQ Outperforms Industry, Trades at a Premium: How to Play the Stock
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Key Takeaways
NDAQ is benefiting from growth in Index, Data, Workflow & Insights and Anti-Financial Crime businesses.
Cross-selling and acquisitions are broadening solutions, growing customer retention and revenue visibility.
Strong cash flow and a healthy balance sheet support dividends, buybacks and future growth initiatives.
Shares of Nasdaq, Inc. (NDAQ - Free Report) have gained 3.4% over the past year, outperforming the industry's 11.7% decline.
Arch Capital has outperformed its peers, including Intercontinental Exchange Inc. (ICE - Free Report) , CME Group Inc. (CME - Free Report) and OTC Markets Group Inc. (OTCM - Free Report) . Shares of ICE, CME and OTCM have lost 21.4%, 3.9% and 2.8%, respectively, in the past year.
Image Source: Zacks Investment Research
With a market capitalization of $50.49 billion, the average volume of shares traded in the last three months was 3.1 million. NDAQ has a solid track record of beating earnings estimates in each of the last four quarters, with an average of 4.93%.
NDAQ Shares are Overvalued
Nasdaq shares are trading at a discount to the Zacks Securities and Exchange industry. Its forward price-to-earnings of 21.89X is higher than the industry average of 19.84X.
NDAQ’s Growth Projection Encourages
The Zacks Consensus Estimate for Nasdaq’s 2026 earnings per share indicates a year-over-year increase of 10.9%. The consensus estimate for revenues is pegged at $5.76 billion, implying a year-over-year improvement of 9.7%.
The consensus estimate for 2027 earnings per share and revenues indicates an increase of 12% and 7.6%, respectively, from the corresponding 2026 estimates.
The long-term earnings growth is expected to be 13%, better than the industry average of 12.2%.
Optimist Analyst Sentiment on NDAQ
Nine of the 12 analysts covering the stock have raised estimates for 2026 and 2027 over the past 60 days. Thus, the Zacks Consensus Estimate for 2025 and 2026 earnings has moved up 0.7% and 0.7%, respectively, in the past 60 days.
Average Target Price for NDAQ Suggests Upside
Based on short-term price targets offered by 17 analysts, the Zacks average price target is $109.24 per share. The average suggests a potential 19.99% upside from the last closing price.
Nasdaq’s Favorable Return on Capital
Return on equity in the trailing 12 months was 17.5%, better than the industry average of 16%. This highlights the company’s efficiency in utilizing shareholders’ funds.
Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting NDAQ’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 7.9%, better than the industry average of 6.6%.
Key Points to Note for NDAQ Stock
Nasdaq’s organic growth has also been aided by its strategy of accelerating its non-trading revenue base, which includes Trading Services and Marketplace Technology businesses, Data & Listing Services, Index and Workflow & Insights businesses and Anti-Financial Crime business, thereby infusing dynamism into its business profile.
Growth in non-trading segments was driven by higher Index revenues, demand for IR and ESG solutions, steady analytics solutions sales to asset managers and increasing recurring data revenues. Anti-Financial Crime revenues should continue to gain from solid demand for fraud detection and anti-money laundering solutions, as well as the SaaS-based surveillance solutions.
Nasdaq focuses on cross-selling multiple products to existing clients and integrating acquisitions to broaden its solutions portfolio, thereby increasing customer stickiness and revenue visibility.
Nasdaq has grown meaningfully over the years through a number of strategic expansions. These acquisitions have helped the company gain direct access to the Canadian equities market, expand its technology offering and improve its market surveillance techniques.
Nasdaq boasts a healthy balance sheet and cash position, along with modest operating cash flow from its diverse business model. A healthy balance sheet ensures the distribution of wealth to shareholders in the form of dividend hikes and share repurchases.
Conclusion
Nasdaq is set to grow on impressive organic growth, an increasing on-trading revenue base and strategic buyouts to capitalize on market opportunities. The company’s focus on Market Technology and Information Services businesses helps explore vast opportunities through its developmental strategies.
NDAQ’s dividend story is impressive. Per its growth strategy, Nasdaq will bring the payout ratio of 35-38% by 2027 and resume share buybacks to offset dilution from the Adenza buyout.
Higher return on capital, favorable growth estimates and attractive valuations should continue to benefit NDAQ over the long term.
View the Zacks #1 Rank List
Image: Bigstock
NDAQ Outperforms Industry, Trades at a Premium: How to Play the Stock
Key Takeaways
Shares of Nasdaq, Inc. (NDAQ - Free Report) have gained 3.4% over the past year, outperforming the industry's 11.7% decline.
Arch Capital has outperformed its peers, including Intercontinental Exchange Inc. (ICE - Free Report) , CME Group Inc. (CME - Free Report) and OTC Markets Group Inc. (OTCM - Free Report) . Shares of ICE, CME and OTCM have lost 21.4%, 3.9% and 2.8%, respectively, in the past year.
Image Source: Zacks Investment Research
With a market capitalization of $50.49 billion, the average volume of shares traded in the last three months was 3.1 million. NDAQ has a solid track record of beating earnings estimates in each of the last four quarters, with an average of 4.93%.
NDAQ Shares are Overvalued
Nasdaq shares are trading at a discount to the Zacks Securities and Exchange industry. Its forward price-to-earnings of 21.89X is higher than the industry average of 19.84X.
NDAQ’s Growth Projection Encourages
The Zacks Consensus Estimate for Nasdaq’s 2026 earnings per share indicates a year-over-year increase of 10.9%. The consensus estimate for revenues is pegged at $5.76 billion, implying a year-over-year improvement of 9.7%.
The consensus estimate for 2027 earnings per share and revenues indicates an increase of 12% and 7.6%, respectively, from the corresponding 2026 estimates.
The long-term earnings growth is expected to be 13%, better than the industry average of 12.2%.
Optimist Analyst Sentiment on NDAQ
Nine of the 12 analysts covering the stock have raised estimates for 2026 and 2027 over the past 60 days. Thus, the Zacks Consensus Estimate for 2025 and 2026 earnings has moved up 0.7% and 0.7%, respectively, in the past 60 days.
Average Target Price for NDAQ Suggests Upside
Based on short-term price targets offered by 17 analysts, the Zacks average price target is $109.24 per share. The average suggests a potential 19.99% upside from the last closing price.
Nasdaq’s Favorable Return on Capital
Return on equity in the trailing 12 months was 17.5%, better than the industry average of 16%. This highlights the company’s efficiency in utilizing shareholders’ funds.
Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting NDAQ’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 7.9%, better than the industry average of 6.6%.
Key Points to Note for NDAQ Stock
Nasdaq’s organic growth has also been aided by its strategy of accelerating its non-trading revenue base, which includes Trading Services and Marketplace Technology businesses, Data & Listing Services, Index and Workflow & Insights businesses and Anti-Financial Crime business, thereby infusing dynamism into its business profile.
Growth in non-trading segments was driven by higher Index revenues, demand for IR and ESG solutions, steady analytics solutions sales to asset managers and increasing recurring data revenues. Anti-Financial Crime revenues should continue to gain from solid demand for fraud detection and anti-money laundering solutions, as well as the SaaS-based surveillance solutions.
Nasdaq focuses on cross-selling multiple products to existing clients and integrating acquisitions to broaden its solutions portfolio, thereby increasing customer stickiness and revenue visibility.
Nasdaq has grown meaningfully over the years through a number of strategic expansions. These acquisitions have helped the company gain direct access to the Canadian equities market, expand its technology offering and improve its market surveillance techniques.
Nasdaq boasts a healthy balance sheet and cash position, along with modest operating cash flow from its diverse business model. A healthy balance sheet ensures the distribution of wealth to shareholders in the form of dividend hikes and share repurchases.
Conclusion
Nasdaq is set to grow on impressive organic growth, an increasing on-trading revenue base and strategic buyouts to capitalize on market opportunities. The company’s focus on Market Technology and Information Services businesses helps explore vast opportunities through its developmental strategies.
NDAQ’s dividend story is impressive. Per its growth strategy, Nasdaq will bring the payout ratio of 35-38% by 2027 and resume share buybacks to offset dilution from the Adenza buyout.
Higher return on capital, favorable growth estimates and attractive valuations should continue to benefit NDAQ over the long term.
It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.