NASDAQ Stays in Neutral Lane - Analyst Blog
28 Dicembre 2012 - 2:25PM
Zacks
We have reiterated our Neutral recommendation on NASDAQ
OMX Group Inc. (NDAQ) based on its efforts to expand in
the international markets and build a low-cost trading platform.
However, heightened competitive pressure amid weak trading volumes
and margins continue to dent our optimism.
The company reported operating earnings of 62 cents per share in
the third quarter of 2012, surpassing the Zacks Consensus Estimate
by a couple of pennies. However, it fell shy of the prior-year
quarter’s earnings of 67 cents a share by a nickel. The
year-over-year shortfall reflects a reduced top line based on low
industry trading volumes and the unfavourable impact from foreign
exchange.
NASDAQ has been making proactive investments to penetrate deeper
into the European over-the-counter (OTC) market. The company’s
latest plan to launch a new interest rate derivative trading
platform NASDAQ NLX in early 2013 also elucidates its strategic
move to attain a competitive edge in Europe. Furthermore, the new
Globex Family Index is enhancing the Globex platform, accounting
for 98% of the global equity investment market with about 24,000
benchmark indices.
Overall, we believe that these factors should create additional
sales opportunities once the markets rebound. These growth drivers
and improved volumes aided by market stability have the potency to
generate accelerated earnings and attract new listings and client
activity.
Additionally, increased retained earnings and cash along with
the ongoing strategic business initiatives are expected to generate
improved earnings and operating cash flow in the long run. NASDAQ’s
fair liquidity also helps it return value to shareholders from time
to time. This is reflected by the expansion of the share buyback
program in August this year and the initiation of a regular cash
dividend in April 2012.
Despite this, NASDAQ continues to suffer from an eroding market
share and weak trading volumes, which is directly affected by the
economic and market conditions, volatility of interest rates,
inflation and changes in price levels of securities.These
limitations reflect the pressing need to respond to the changing
industry dynamics and dig in opportunities for gaining
scalecompetitive strength.
Moreover, severe competition from arch rivals such as
NYSE Euronext Inc. (NYX) and CME Group
Inc. (CME) continues to be a lingering concern for NASDAQ.
The upcoming merger of NYSE with IntercontinentalExchange
Inc. (ICE) raises the concerns about maintaining a
competitive and operating leverage.
This gets more crucial as the fragile top-line scenario has been
generating lower earnings, cash balance and operating cash flow,
reflecting a cautious outlook on the company’s fundamentals. We do
not expect random growth in the top line unless the current market
recovery provides resonance to credit quality. In addition, the
current initiatives that are being taken up by regulators and
governments across the U.S. and Europe could have a material
adverse effect on overall trading volumes.
Hence, based on the pros and cons, the Zacks Consensus Estimate
pegs earnings for the fourth quarter of 2012 at 61 cents per share,
which is about 2% lower than the year-ago quarter. Even for 2012,
earnings are expected to decline about 2% over 2011 to $2.48 per
share.
Currently, NASDAQ carries a Zacks Rank #3, indicating no clear
directional pressure on the stock in the near term.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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