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Here's Why Hold Strategy is Apt for MarketAxess (MKTX) Stock

Zacks Equity Research
·3 min read

MarketAxess Holdings Inc. MKTX has been gaining momentum from robust trading volumes, constant buyouts and accelerated capital deployment strategies.

The company has an impressive earnings surprise history. It has beat estimates in each of the trailing four quarters, the average surprise being 2.49%.

MarketAxess’ trailing 12-month return on equity (ROE) of 33.8% is higher than the industry’s average of 12.3%. This highlights the company’s tactical utilization of shareholders’ funds.

The Zacks Consensus Estimate for 2020 earnings per share indicates year-over-year improvement of 38.9%. The company has an impressive Growth Score of A. Notably, this style score analyzes the growth prospects of a company.

What’s Driving MarketAxess?

This Zacks Rank #3 (Hold) company, which boasts of a global electronic platform, has been offering trading services to the institutional participants with U.S. credit products.  Notably, adoption of electronic trading, which is still in the nascent stage of market penetration, has witnessed accelerated growth.

The company’s core product offerings include U.S. High Grade, U.S. High Yield, Eurobond and Emerging Markets, which in turn diversifies MarketAxess’ product suite. In fact, a varied product portfolio has paved the way for solid trading volumes, which have been driving commission revenues further. It has to be noted that commission revenues account for a major portion of the company’s top-line growth, which has witnessed a five-year CAGR of 14%. Also, the Zacks Consensus Estimate for 2020 revenues suggests year-over-year growth of 31.1%.

Moreover, MarketAxess has been on an acquisition spree. The company’s buyout of LiquidityEdge last year has not only added to the streaming capabilities of Marketaxess but also enabled it to capitalize on the prevailing opportunities in the U.S. Treasury bond market. Its efforts to expand presence in the municipal bond market is further substantiated by the company’s deal to acquire MuniBrokers last month. It is also on course to acquire the Regulatory Reporting Hub from Deutsche Börse Group.

Furthermore, these buyouts have not only enhanced the company’s product offerings but also helped it to foray into newer markets, which is one of the primary growth strategies of MarketAxess. The company’s global client network also remains strong with constant client additions, as a result of which international client volumes last year expanded 39% on a year-over-year basis.

Additionally, the company’s cash position remains strong. It has been witnessing constant rise in free cash flows over the past several quarters, which has paved the way for an accelerated capital deployment through share repurchase and dividend hikes.

Shares of MarketAxess have gained 49.4% in a year compared with the industry’s growth of 0.4%.

The price performance looks stronger when compared with the other companies’ stock movements in the same space, such as Nasdaq, Inc. NDAQ and Intercontinental Exchange Inc. ICE which have rallied 27.1% and 8.4%, respectively. Meanwhile, CME Group Inc. CME has lost 20.2% during the same time frame.

However, the company’s costs have remained elevated for quite some time, which can put pressure on its margins in the days ahead. Nevertheless, we believe that the company’s strong fundamentals will sustain momentum in the long run.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Intercontinental Exchange Inc. (ICE) : Free Stock Analysis Report
 
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