MarketAxess Holdings Inc. (MKTX - Free Report) is well-poised to gain from continuous top-line growth and effective capital deployment strategies.
The company has a decent earnings surprise history. It has a trailing four-quarter positive earnings surprise of 1.09%, on average.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $7.01 and $7.51, indicating an improvement of 29.8% and 7.1%, respectively, from the year-ago reported figure.
The company’s ROE of 31.1%, which has improved over the past four years, remains higher than the industry’s ROE of 12.2%, reflecting efficiency in using shareholder’s funds.
Shares of this Zacks Rank #1 (Strong Buy) company have surged 66.2% in a year, outperforming the industry’s growth of 12.4%.
Factors at Play
MarketAxess continues to benefit on the back of improved top line. Revenues have witnessed a CAGR of 14.2% over the past five years (2014-2019) driven by constant growth in commission received on credit trading volumes and the inclusion of treasury trading commissions. A strong international business continues to drive the company’s revenues. MarketAxess even plans to introduce European credit products in second-quarter 2020.
Furthermore, we believe that solid trading results have contributed to the top line. Total credit trading volumes expanded 29% year over year in the first quarter, primarily on the back of steep growth in credit market volatility in late February of this year. As a result of the financial turmoil induced by the COVID-19 pandemic, the Fed and other central banks have introduced a number of programs aimed at injecting liquidity into the economy. The company witnessed growth in credit trading conditions during April partially driven by such endeavors. Further, as market conditions started stabilizing in late March, corporations issued higher debt, which led to a record of new high grade debt amounting to $480 billion in the first quarter. We believe that increased issuance of debt is likely to generate higher secondary trading opportunities for MarketAxess.
Additionally, the company’s improved liquidity position has resulted in a strong balance sheet and cash flows. It has sufficient cash reserves to meet debt obligations. Evidently, cash and cash equivalents came in at $363.8 million as of Mar 31, 2020, while its long-term debt amounted at $96.3 million. Further, cash flow from operations soared 205.7% in the first quarter. This is also indicative of the company’s strong solvency position.
By virtue of its financial position, we believe that MarketAxess engages in capital deployment in the form of share buybacks and dividend payouts. Its dividend payments have witnessed a CAGR of 26.1% over the last five years (2014-2019). The company has bought back shares worth $5.4 million in first-quarter 2020.
Other Stocks to Consider
Some other top-ranked stocks in the same space include CME Group Inc. (CME - Free Report) , Cboe Global Markets, Inc. (CBOE - Free Report) and Nasdaq, Inc. (NDAQ - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CME Group, CBOE Global and Nasdaq surpassed estimates in the last reported quarter by 4.48%, 7.14% and 3.45%, respectively.
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