MarketAxess Holdings Inc. MKTX looks attractive given its consistently strong operating performance over the past quarters, launch of new services, and the recent acquisition of Liquidity Edge, which further increases optimism about its long-term growth prospects.
Let’s take a look at the factors that make this Zacks Rank #2 (Buy) stock a compelling choice for investors right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
An Outperformer: MarketAxess has outperformed its industry on a year-to-date basis. The stock has gained 88.8% against the industry’s decline of 6.4%.
Earnings Estimates Moving North: Annual estimates for MarketAxess have been northward bound over the past 60 days, reflecting analysts’ confidence in the stock. Over this period, the Zacks Consensus Estimate for current-year earnings climbed 2.8% to $5.42.
Given the wealth of information at their disposal, it is in the best interest of investors to be guided by brokers’ advice. The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Solid Growth Prospects: The Zacks Consensus Estimate for MarketAxess’ current-year earnings indicates an improvement of 18.6% year over year, higher than the industry’s expected earnings decline of 1%. The company expects earnings per share growth rate of 14.2% for 2020 compared with industry’s growth of 10.7%.
The scenario is impressive with respect to revenues as well. For 2019, the Zacks Consensus Estimate for the company’s top line stands at $509.13 million, indicating 16.9% growth year over year. For 2020, the average forecast is pegged at $578.94 billion, suggesting a 13.71% improvement year over year.
Impressive Earnings Surprise History: MarketAxess has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in three of the past four quarters, the average earnings beat being 1.45%.
Superior Operating Profit: MarketAxess’ trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 31% is higher than the industry’s ROE of 12%, reflecting tactical efficiency in using shareholders’ funds.
Business Tailwinds: The company’s total trading volumes have been increasing over the years and the same increased 24% in the first nine months of 2019. This also led to an increase in the company’s market share to 18.8% for the nine months ended September 2019 from 17.6% for the nine months ended Sep 30, 2018. Investments in technology, launch of new trading platforms and acquisitions have driven this growth.
New business initiatives taken by the company to build a sustainable long-term growth trajectory will drive its stock.
Launch of Live Markets: In October, the company launched Live Markets with a pilot group of investor and dealer clients. The company is getting good response from this new protocol. This, coupled with the growing adoption of automated trading strategies, underscores the need for a protocol that offers live order-driven liquidity for both investors and dealers.
Acquisition of Liquidity Edge: In November, the company completed the acquisition of LiquidityEdge, a leading U.S. treasuries trading venue. This acquisition brings streaming treasury liquidity and trading capabilities to MarketAxess. This deal provides the dealers with a strategic opportunity to grow the business by building custom dealer to client connections, which the company expects to launch in the first half of 2020. The acquisition also supports further expansion of the company’s treasury hedging capabilities, with the first phase of these enhancements set to launch later in the fourth quarter.
We are also impressed by the company’s efforts to reward its shareholders through dividends and buybacks. Solid free cash-flow generation supports the shareholder-friendly activities of the company. Notably, the company’s free cash flow increased 21% year over year in 12 months ended Sep 30, 2019.
Some other top-ranked stocks worth considering in the same space are Intercontinental Exchange Inc. ICE, Nasdaq, Inc. NDAQ and CME Group Inc. CME. Each of the stocks carries a Zacks Rank #2.
Nasdaq has surpassed estimates in three of the four reported quarters with an average positive surprise of 2.94. CME Group and Intercontinental Exchange outperformed estimates in each of the four reported quarters by 2.88% and 4.82%, on average, respectively.
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