Nasdaq’s NDAQ improving organic growth, focus on ramping up the on-trading revenue base, buyouts to capitalize on growing market opportunities, effective capital deployment and favorable growth estimates make it worth retaining in one’s portfolio.
NDAQ has a decent track record of beating estimates. Its earnings beat estimates in three of the last four quarters, the average being 4.62%. Earnings in the last five years grew 13.6% compared with the industry average of 10.5%.
Return on equity was 21.9% in the trailing 12 months, better than the industry average of 20.3%.
Zacks Rank & Price Performance
Nasdaq currently carries a Zacks Rank #3 (Hold). Year to date, the stock has lost 20.3% against the industry’s increase of 8%.
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Optimistic Growth Projections
The Zacks Consensus Estimate for NDAQ’s 2024 earnings is pegged at $2.74 per share, indicating a 3% increase from the year-ago reported figure on 4% higher revenues of $3.7 billion. The consensus estimate for 2024 earnings is pegged at $2.75 per share, indicating a 0.1% increase from the year-ago reported figure on 9.6% higher revenues of $4.1 billion. The expected long-term earnings growth is pegged at 3.5%.
Nasdaq’s growth strategy focuses on generating more revenues from high-growth Market Technology and Investment Intelligence segments as well as redirecting R&D spending toward higher-growth products. NDAQ targets 5-7% long-term growth from a non-trading revenue base.
Nasdaq also has an impressive inorganic growth story. It inked a deal to buy Adenza Group, a premium software and technology company, which is expected to boost its Marketplace Technology and Anti-Financial Crime solutions. The transaction will strengthen offerings across a wider spectrum of regulatory technology, compliance and risk management solutions when the buyout closes.
Nasdaq’s annualized recurring revenues, as a percentage of 2023 proforma total revenues, are estimated to increase 60% from 56% in 2022 and Nasdaq’s Solutions Businesses, as a percentage of 2023 proforma total revenues, to 77% due addition of Adenza Group. It is also expected to improve Nasdaq’s Solutions Business medium-term organic revenue growth to 8-11% from 7-10% expected earlier.
Nasdaq, to capitalize on the opportunities in cryptocurrency markets, has been accelerating its technology expansion. Given a revolutionary change in technological innovation in artificial intelligence, NDAQ has been investing in proprietary data and migrating markets and SaaS solutions to the cloud to reap benefits.
Nasdaq noted that the anti-fin crime space has a total addressable market of $12.5 billion and is expected to witness a CAGR of 17% through 2024. Thus, the strategic acquisition of Verafin in February 2021 was targeted to consolidate Nasdaq's established reg tech leadership to create a global SaaS leader. Nasdaq aims 40-50% Saas revenues, as a percentage of total revenues by 2025.
NDAQ estimates strong growth from its index and analytics businesses, followed by moderate growth in its exchange data products across U.S. and Nordic equities. Nasdaq estimates 5-8% revenue organic growth in Investment Intelligence, 13-16% in Market Technology and 3-5% in Corporate Platform segments over the medium term.
Due to a change in corporate structure, NDAQ estimates to incur $115 million to $145 million in pretax charges, of which about 40% will be non-cash charges. Nonetheless, this will help unlock revenue synergies. Nasdaq estimates benefits in the form of combined annual run rate operating efficiencies and revenue synergies of at least $30 million by 2025.
A Solid Capital Position
Nasdaq has a healthy balance sheet and cash position along with modest operating cash flow by virtue of its diverse business model.
Banking on the strength of a solid capital position, NDAQ increased its dividend at a nine-year (2015-2023) CAGR of 6%. It has $491 million remaining in its authorization kitty.
Nasdaq intends to pursue its existing capital deployment plan, including steadily increasing its dividend per share and dividend payout ratio, to achieve 35-38% within three to four years.
Notably, NDAQ has delivered more than 400% of total shareholder returns since 2014.
Stocks to Consider
Some better-ranked stocks from the finance sector are Axis Capital Holdings Limited AXS, Chubb Limited CB and Cincinnati Financial Corporation CINF. While Axis Capital sports a Zacks Rank #1 (Strong Buy), Chubb and Cincinnati Financial carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Axis Capital has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 9.75%. In the past year, AXS has gained 13.1%.
The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $8.41 and $9.31, indicating a year-over-year increase of 44.7% and 10.7%, respectively.
Chubb has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 3.36%. CB has climbed 15.2% in the past year.
The Zacks Consensus Estimate for CB’s 2023 and 2024 earnings per share is pegged at $18.18 and $19.86, indicating a year-over-year increase of 19.2% and 9.2%, respectively.
Cincinnati Financial has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 25.25%. In the past year, CINF has gained 14%.
The Zacks Consensus Estimate for CINF’s 2023 and 2024 earnings per share is pegged at $5 and $5.88, indicating a year-over-year increase of 17.9% and 17.6%, respectively.
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