MarketAxess: A Strong Sell

Zacks

On Jun 5, 2014, Zacks Investment Research downgraded MarketAxess Holdings Inc. (MKTX) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

MarketAxess has been witnessing downward estimate revisions due to a sluggish growth outlook, given the lack of any significant growth catalyst and intense competition. This escalates operational and financial risks. Volumes for May 2014 also sapped within the U.S. high-grade fixed-rate securities, which accounts for more than half of the total volumes.

Additionally, this fixed-income securities exchange underperformed the one-year Nasdaq index, which posed growth of 23% against 19.6% clocked by the company. Furthermore, the company failed to deliver any positive earnings surprise in 2 of the last 4 quarters.

On Apr 23, MarketAxess reported first-quarter 2014 operating earnings per share of 46 cents, which was in line with the Zacks Consensus Estimate but higher than the prior-year figure by 12.3%.

While the top line grew 18.1%, total expenses rose 23.1%, both on a year-over-year basis. As a result, operating margin deteriorated to 43.7% from 46% in the year-ago quarter. Reduction was also witnessed in credit spreads and yields during the quarter. Moreover, average variable transaction fee per million was lower than the comparable period.  A weakened cash and balance sheet position were other headwinds.

Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 declined 3.1% and 4.1% to $1.87 and $2.36 a share, respectively, in the last 30 days. No upward revision in estimates was witnessed for both these years, which further reflects a slow growth momentum.

Other Worthy Financial Stocks

While we prefer to avoid MarketAxess for the time being, better-ranked financial stocks like Ladder Capital Corp. (LADR), Xoom Corp. (XOOM) and HCI Group Inc. (HCI) are worth considering. All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on MKTX
Read the Full Research Report on HCI
Read the Full Research Report on XOOM
Read the Full Research Report on LADR


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