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Nasdaq (NDAQ) Up 3.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Nasdaq (NDAQ). Shares have added about 3.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nasdaq due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Nasdaq Beats on Q3 Earnings, Lowers Expense View

Nasdaq reported third-quarter 2019 adjusted earnings per share of $1.27, beating the Zacks Consensus Estimate of $1.21 by nearly 5%. The bottom line increased 10.4% year over year.

Nasdaq witnessed growth in non-trading revenues. Strategic acquisitions contributed to revenues in the quarter. The company continued to deliver solid growth in its expanded technology and analytics offerings while benefiting from rising equities market share and a dynamic trading and IPO environment.

Performance in Detail

Nasdaq’s revenues of $632 million increased 5.3% year over year. The upside was primarily attributable to organic growth and a positive $12 million impact from the addition of revenues from the acquisitions of Cinnober and Quandl. However, a $10 million negative impact from a divestiture and a $7 million unfavorable impact from changes in foreign exchange rates were partial offsets. Organic revenues grew 6%. The top line beat the Zacks Consensus Estimate by 0.4%.

Adjusted operating expenses were $317 million, up 2% from the year-ago period owing to organic expense increase and a $1 million increase from the net impact of acquisitions and divestitures, partially offset by a $6 million favorable impact from changes in foreign exchange rates.

Operating margin of 50% expanded 200 basis points year over year.

In the U.S. market, Nasdaq welcomed 66 new listings, including 41 IPOs. Nasdaq's European exchanges added eight new listings, including four IPOs, taking the Nordic and Baltic listed companies tally to1,028 as on Sep 30, 2019, an increase of 2% year over year.

Segment Details

Net revenues at Market Services were up 2% from the year-ago quarter to $226 million. This upside was largely driven by higher revenues from equity derivative trading and clearing.

Revenues at Corporate Services increased 2% year over year to $124 million, driven by higher listings services revenues as well as corporate solutions revenues.

Information Services revenues rose 11% year over year to $198 million. Higher market data revenue, index revenues as well as investment data & analytics revenues drove the upside.

Revenues at Market Technology increased 24% year over year to $79 million, largely riding on Cinnober acquisition and organic growth.

Financial Update

Nasdaq had cash and cash equivalents of $333 million as of Sep 30, 2019, down 43.2% from 2018-end level. As of Sep 30, 2019, long-term debt decreased 0.6% from 2018-end level to $3 billion.

Capital Deployment

The company paid out $150 million in dividend and spent $78 million in share buybacks during the third quarter.

As of Sep 30, 2019, Nasdaq had $132 million remaining under its share repurchase authorization. In October 2019, the board authorized an additional $500 million under Nasdaq’s existing share repurchase program, taking the total authorization to $632 million as of Oct 22, 2019.

Dividend Update

The board of directors announced quarterly dividend of 47 cents per share. The dividend will be paid out on Dec 27, 2019 to shareholders of record as of Dec 13, 2019.

Guidance

Nasdaq expects 2019 non-GAAP operating expense in the range of $1.285 billion to $1.295 billion compared with $1.295 billion to $1.320 billion guided earlier.

Non-GAAP tax rate is estimated to be in the range of 26% to 27% in 2019.

In September 2019, Nasdaq initiated the transition of certain technology platforms to advance the company's strategic opportunities as a technology and analytics provider and continue the re-alignment of certain business areas. As such, Nasdaq expects to incur $65 million to $75 million in pre-tax charges over a two-year period (including $30 million in the third quarter of 2019) related primarily to non-cash items such as asset write-downs, accelerated depreciation as well as third-party consulting costs.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Nasdaq has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Nasdaq has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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