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MarketAxess (MKTX) Up 5.5% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for MarketAxess (MKTX - Free Report) . Shares have added about 5.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MarketAxess due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
MarketAxess Q2 Earnings Beat on Higher Commissions
MarketAxess Holdings reported second-quarter 2024 earnings per share of $1.72, which surpassed the Zacks Consensus Estimate by 1.8%. The bottom line grew 5.5% year over year.
Total revenues of $197.7 million rose 10% year over year. The top line fell short of the consensus mark of $198 million.
The better-than-expected quarterly results were driven by a solid improvement in U.S. high-grade commission revenues. Geographic expansion and product diversification drove the average daily volume (ADV) of emerging markets and Eurobonds. However, the upside was partly offset by lesser trading activity of U.S. high-yield and an elevated expense level.
Quarterly Operational Update
Commission revenues totaled $171.7 million, which increased 8% year over year but missed the Zacks Consensus Estimate of $173 million and our estimate of $176.5 million. The improvement in the metric was driven by better commission revenues in the U.S. high-grade, Eurobonds, and emerging markets. Information services revenues improved 8% year over year to $12.5 million. The figure lagged the consensus mark of $12.6 million but beat our estimate of $12 million. The metric benefited on the back of net new data contract revenues.
Post-trade services revenues of $10.4 million improved 10% year over year, attributable to price increases and net new contract revenues. The reported figure beat the consensus mark by a whisker. Revenues from the Pragma acquisition were $7.9 million.
Total expenses of $116.3 million escalated 12% year over year due to higher employee compensation and benefits and technology and communication expenses. However, the metric fell short of our estimate of $120.5 million.
MKTX’s operating income rose 7% year over year to $81.3 million, higher than our estimate of $80.8 million. EBITDA of $99 million improved 9% year over year while EBITDA margin deteriorated 40 bps to 50%.
Trading Volumes in Detail
The high-grade trading volume of MarketAxess was $405.4 billion, which improved 15% year over year but missed the Zacks Consensus Estimate of $412.5 billion. The ADV of the same product category improved 13% year over year to $6.4 billion, lower than the consensus mark of $6.5 billion and our estimate of $6.9 billion.
However, high-yield trading volume plunged 8% year over year while its ADV fell 9% due to a reduced level of credit spread volatility.
Other credit trading volume jumped 35% to $33.4 billion whereas ADV of the same product category rose 33% year over year to $530 million.
Trading volume and ADV of emerging markets rose 25% and 23%, respectively, on a year-over-year basis. The Eurobonds’ trading volume and ADV rose 10% and 8%, respectively, on a year-over-year basis.
Total credit trading volume of $861.5 billion advanced 14% year over year and surpassed the Zacks Consensus Estimate of $853.6 billion. Total credit ADV rose 12% year over year to $13.7 billion, lower than the consensus mark of $13.8 billion and our estimate of $14.1 billion.
Total rates’ trading volume jumped 33% while ADV of this product category improved 31% year over year.
Balance Sheet (As of Jun 30, 2024)
MarketAxess exited the second quarter with cash and cash equivalents of $434.1 million, which declined 3.8% from the 2023-end level. Total assets of $1.9 billion decreased 6.4% from the figure at 2023-end.
The company had no outstanding borrowing under its credit facility at the second-quarter end. Total stockholders’ equity of $1.3 billion grew 2.8% from the 2023-end level.
Cash Flows
Cash generated from operations amounted to $118.8 million against the previous year's figure of $105.3 million. Free cash flow was recorded at $97.6 million, which rose more than one-fold year over year.
Capital Deployment Update
MarketAxess bought back shares worth $33.5 million. Management approved a $200 million increase to the existing share repurchase plan in August 2024. A leftover capacity of $250 million remained in place under the company’s authorized repurchase program as of Aug 6, 2024.
Management approved a quarterly cash dividend of 74 cents per share, which will be paid out on Sep 4, 2024, to shareholders of record as of Aug 21.
2024 Guidance
Previous View
Management anticipates revenues from the Pragma acquisition to grow in mid-single digits while expenses are expected to be in the range of $33-$35 million.
Total expenses (including the Pragma acquisition) continue to be estimated between $480 million and $500 million but the metric is expected to stay at the lower end of the guided range.
Capital expenditure is to be projected to be between $60 million and $65 million, while the effective tax rate is reaffirmed to lie between 24% and 25%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, MarketAxess has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MarketAxess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
MarketAxess is part of the Zacks Securities and Exchanges industry. Over the past month, CME Group (CME - Free Report) , a stock from the same industry, has gained 5.4%. The company reported its results for the quarter ended June 2024 more than a month ago.
CME reported revenues of $1.53 billion in the last reported quarter, representing a year-over-year change of +12.7%. EPS of $2.56 for the same period compares with $2.30 a year ago.
CME is expected to post earnings of $2.48 per share for the current quarter, representing a year-over-year change of +10.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for CME. Also, the stock has a VGM Score of F.
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MarketAxess (MKTX) Up 5.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for MarketAxess (MKTX - Free Report) . Shares have added about 5.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MarketAxess due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
MarketAxess Q2 Earnings Beat on Higher Commissions
MarketAxess Holdings reported second-quarter 2024 earnings per share of $1.72, which surpassed the Zacks Consensus Estimate by 1.8%. The bottom line grew 5.5% year over year.
Total revenues of $197.7 million rose 10% year over year. The top line fell short of the consensus mark of $198 million.
The better-than-expected quarterly results were driven by a solid improvement in U.S. high-grade commission revenues. Geographic expansion and product diversification drove the average daily volume (ADV) of emerging markets and Eurobonds. However, the upside was partly offset by lesser trading activity of U.S. high-yield and an elevated expense level.
Quarterly Operational Update
Commission revenues totaled $171.7 million, which increased 8% year over year but missed the Zacks Consensus Estimate of $173 million and our estimate of $176.5 million. The improvement in the metric was driven by better commission revenues in the U.S. high-grade, Eurobonds, and emerging markets. Information services revenues improved 8% year over year to $12.5 million. The figure lagged the consensus mark of $12.6 million but beat our estimate of $12 million. The metric benefited on the back of net new data contract revenues.
Post-trade services revenues of $10.4 million improved 10% year over year, attributable to price increases and net new contract revenues. The reported figure beat the consensus mark by a whisker. Revenues from the Pragma acquisition were $7.9 million.
Total expenses of $116.3 million escalated 12% year over year due to higher employee compensation and benefits and technology and communication expenses. However, the metric fell short of our estimate of $120.5 million.
MKTX’s operating income rose 7% year over year to $81.3 million, higher than our estimate of $80.8 million. EBITDA of $99 million improved 9% year over year while EBITDA margin deteriorated 40 bps to 50%.
Trading Volumes in Detail
The high-grade trading volume of MarketAxess was $405.4 billion, which improved 15% year over year but missed the Zacks Consensus Estimate of $412.5 billion. The ADV of the same product category improved 13% year over year to $6.4 billion, lower than the consensus mark of $6.5 billion and our estimate of $6.9 billion.
However, high-yield trading volume plunged 8% year over year while its ADV fell 9% due to a reduced level of credit spread volatility.
Other credit trading volume jumped 35% to $33.4 billion whereas ADV of the same product category rose 33% year over year to $530 million.
Trading volume and ADV of emerging markets rose 25% and 23%, respectively, on a year-over-year basis. The Eurobonds’ trading volume and ADV rose 10% and 8%, respectively, on a year-over-year basis.
Total credit trading volume of $861.5 billion advanced 14% year over year and surpassed the Zacks Consensus Estimate of $853.6 billion. Total credit ADV rose 12% year over year to $13.7 billion, lower than the consensus mark of $13.8 billion and our estimate of $14.1 billion.
Total rates’ trading volume jumped 33% while ADV of this product category improved 31% year over year.
Balance Sheet (As of Jun 30, 2024)
MarketAxess exited the second quarter with cash and cash equivalents of $434.1 million, which declined 3.8% from the 2023-end level. Total assets of $1.9 billion decreased 6.4% from the figure at 2023-end.
The company had no outstanding borrowing under its credit facility at the second-quarter end. Total stockholders’ equity of $1.3 billion grew 2.8% from the 2023-end level.
Cash Flows
Cash generated from operations amounted to $118.8 million against the previous year's figure of $105.3 million. Free cash flow was recorded at $97.6 million, which rose more than one-fold year over year.
Capital Deployment Update
MarketAxess bought back shares worth $33.5 million. Management approved a $200 million increase to the existing share repurchase plan in August 2024. A leftover capacity of $250 million remained in place under the company’s authorized repurchase program as of Aug 6, 2024.
Management approved a quarterly cash dividend of 74 cents per share, which will be paid out on Sep 4, 2024, to shareholders of record as of Aug 21.
2024 Guidance
Previous View
Management anticipates revenues from the Pragma acquisition to grow in mid-single digits while expenses are expected to be in the range of $33-$35 million.
Total expenses (including the Pragma acquisition) continue to be estimated between $480 million and $500 million but the metric is expected to stay at the lower end of the guided range.
Capital expenditure is to be projected to be between $60 million and $65 million, while the effective tax rate is reaffirmed to lie between 24% and 25%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, MarketAxess has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MarketAxess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
MarketAxess is part of the Zacks Securities and Exchanges industry. Over the past month, CME Group (CME - Free Report) , a stock from the same industry, has gained 5.4%. The company reported its results for the quarter ended June 2024 more than a month ago.
CME reported revenues of $1.53 billion in the last reported quarter, representing a year-over-year change of +12.7%. EPS of $2.56 for the same period compares with $2.30 a year ago.
CME is expected to post earnings of $2.48 per share for the current quarter, representing a year-over-year change of +10.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for CME. Also, the stock has a VGM Score of F.