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Why Is Nasdaq (NDAQ) Up 9.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Nasdaq (NDAQ - Free Report) . Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nasdaq due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Nasdaq Surpasses Q1 Earnings and Revenue Estimates

Nasdaq, Inc. reported first-quarter 2020 adjusted earnings per share of $1.50, which beat the Zacks Consensus Estimate by 3.4%. The bottom line increased 22.9% year over year.

Earnings benefited from growth in non-trading revenues. Strategic acquisitions contributed to revenues in the quarter.

Performance in Detail

Nasdaq’s revenues of $701 million increased 11% year over year. The upside was primarily due to the $51 million positive impact from organic growth in the Market Services segment, a $30 million positive impact from organic growth in the non-trading segments and a $2 million increase from the inclusion of revenues from acquisitions, partially offset by a $10 million negative impact from divestitures and a $6 million unfavorable impact from changes in exchange rates. The top line beat the Zacks Consensus Estimate of $684 million by 2.5%.

Adjusted operating expenses were $336 million in the reported quarter, up 4.3% from the year-ago period owing to an increase of $23 million in organic expense, partially offset by a $5 million decline from the net impact of acquisitions and a divestiture, and a $4 million favorable impact from changes in foreign exchange rates.

Notably, there were 4,185 listed companies on Nasdaq in the first quarter of 2020 compared with 4,077 in the year-ago period. Total listings grew 2.6% year over year to 4,180.

Operating margin of 52% expanded 300 basis points year over year.

Segment Details

Net revenues at Market Services were up 20.6% from the year-ago quarter to $281 million. This upside was due to higher revenues from equity derivative trading and clearing services and cash equity trading services.

Revenues at Corporate Services increased 5.8% year over year to $128 million, mainly on the back of higher revenues from Listings Services and Corporate Solutions services.

Information Services revenues rose 9.3% year over year to $211 million. Higher Market Data revenues, Index revenues and Investment Data & Analytics revenues drove the upside.

Revenues at Market Technology increased 5.2% year over year to $81 million, riding on higher revenues from SaaS surveillance and an increase in software delivery and support projects, partially offset by a decrease in change request revenues and an unfavorable impact from foreign exchange of $2 million.

Financial Update

Nasdaq had cash and cash equivalents of $1015 million as of Mar 31, 2020, up 205.7% from 2018-end level. As of Mar 31, 2020, long-term debt reduced 1.1% from 2019-end level to $2.9 billion.

Capital Deployment

The board of directors approved a 4% hike in regular quarterly dividend to 49 cents. This was in line with the company’s policy of hiking dividend over the long term as earnings and cash flow increase.

As of Mar 31, 2020, Nasdaq had $510 million remaining under its share repurchase authorization.

Guidance

Nasdaq expects 2020 non-GAAP operating expense in the range of $1.32 to $1.37 billion compared with $1.29 to $1.33 billion guided earlier. The revised guidance takes into account acquisitions of Solovis and OneReport during the first quarter of 2020.

Non-GAAP tax rate is estimated to be in the range of 25.5% to 27.5% in 2020 compared with the prior guidance of 26% to 27%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Nasdaq has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Nasdaq has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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