Riding on a steady growth momentum, Nasdaq OMX Group Inc. (NDAQ) reached a new 52-week high at $32.92 on Jun 10, after hitting a 52-week high of $32.88 on Friday. Shares of this global stock exchange operator climbed approximately 16.7% since the company reported its first-quarter 2013 results, with a positive earnings surprise of 4.92%.
The improved momentum of this Zacks Rank #3 (Hold) stock is driven by the company’s vigorous efforts to perk up organic growth coupled with strict expense control. Nasdaq delivered positive earnings surprise in all of the last 4 quarters with an average beat of about 4.96%.
Yesterday’s closing price represents a strong one-year return of about 48.8% and a year-to-date return of about 31.7%. The Nasdaq index jumped 21.5% and 15.0%, respectively during the same period. Average volume of shares traded over the last three months stands at approximately 1628.3K.
On Apr 24, Nasdaq reported its first-quarter earnings per share of 64 cents, which comfortably surpassed the Zacks Consensus Estimate and the year-ago quarter’s earnings of 61 cents.
Results reflected slight improvement in average daily volumes along with improved information, technology and market data revenues. The upsides were partially offset by continued weakness in revenues from market services and listings. Meanwhile, operating expenses surged due to high operating costs and expense related to voluntary accommodation program.
While Nasdaq is focusing on gaining scale through strategic acquisitions and alliances coupled with intense organic growth, the rising debt on account of such expansions are raising the concerns of the ratings agencies. Nevertheless, these factors should create additional sales opportunities in the long run, thereby sustaining investor confidence on the stock.
Further, valuation for Nasdaq appears to be somewhat stretched. The shares are trading at a 40% discount to the peer group average on a forward price-to-earnings basis and 67% discount on a price-to-book basis. While return on equity of 8.4% is quite below the peer group average, return on assets of 4.8% stands fairly above the same comparable metric. Even the estimated long-term earnings growth is pegged at 9.4%, lower than the peer group average of 11.9%.
Apart from Nasdaq, other stocks that warrant a look in the financial sector include XL Group Plc (XL), Regional Management Corp. (RM) and Investment Technology Group Inc. (ITG). All these stocks carry a Zacks Rank #1 (Strong Buy).
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