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Nasdaq Stock Rallies 42.5% in a Year: More Room for Upside?
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Nasdaq, Inc. (NDAQ - Free Report) shares have rallied 42.5% over the past year compared with the industry's growth of 20.2%. The Finance sector and the Zacks S&P 500 composite have returned 28.3% and 23.5%, respectively, in the same time frame. With a market capitalization of $42.23 billion, the average volume of shares traded in the last three months was 2.76 million.
NDAQ Outperforms Industry, Sector, S&P 500
Image Source: Zacks Investment Research
The rally was largely driven by its impressive organic growth, ramping up of on-trading revenue base, strategic buyouts to capitalize on growing market opportunities and effective capital deployment.
This securities and exchanges company, carrying a Zacks Rank #3 (Hold) at present, surpassed earnings estimates in three of the last four quarters and missed in one, the average being 3.39%.
NDAQ’s Growth Projection Encourages
The Zacks Consensus Estimate for Nasdaq’s 2024 revenues is pegged at $4.65 billion, implying a year-over-year improvement of 19.4%. The consensus estimate for 2025 earnings per share and revenues indicates an increase of 12.7% and 7.1%, respectively, from the corresponding 2024 estimates. Earnings have grown 12.7% in the past five years, better than the industry average of 9.8%.
Optimistic Analyst Sentiment on NDAQ
Nine of the 10 analysts covering the stock have raised estimates for 2024, and eight analysts have raised the same for 2025 over the past 60 days. Thus, the Zacks Consensus Estimate for 2024 and 2025 moved 2.2% and 2.3% north, respectively, in the last 60 days.
NDAQ’s Favorable Return on Capital
Return on equity in the trailing 12 months was 15.4%, higher than the industry average of 13.2% as well as the intermediate-term target. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Its return on invested capital (ROIC) has increased every year. This reflects NDAQ’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 6.5%, higher than the industry average of 4.8%.
Factors Acting in Favor of Nasdaq
Nasdaq’s growth strategy encompasses generating more revenues from high-growth Market Technology and Investment Intelligence segments, forwarding R&D spending toward higher-growth products, expanding its Anti-Financial Crime clientele as well as making innovations.
The company estimates strong growth from its index and analytics businesses and moderate growth in its exchange data products across U.S. and Nordic equities.
Its inorganic growth is impressive. The Adenza Group buyout boosted its Marketplace Technology and Anti-Financial Crime solutions apart from strengthening offerings across a wider spectrum of regulatory technology, compliance and risk management solutions.
Given opportunities in the cryptocurrency markets, NDAQ is investing in proprietary data and migrating markets and SaaS solutions.
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. Verafin consolidated Nasdaq's established reg tech leadership to create a global SaaS leader. Nasdaq aims to achieve 40-50% SaaS revenues as a percentage of total revenues by 2025.
NDAQ’s Wealth Distribution
Nasdaq boasts a healthy balance sheet and cash position, along with modest operating cash flow from its diverse business model. Nasdaq continued its track record of strong free cash flow generation with $328 million in the second quarter of 2024. A healthy balance sheet ensures the distribution of wealth to shareholders in the form of dividend hikes and share repurchases. Its current dividend yield is 1.3%. Per its growth strategy, Nasdaq will bring payout ratio of 35% to 38% by 2027 and resume share buyback to offset dilution due to Adenza buyout.
Nasdaq remains committed to deploying capital effectively by de-leveraging, investing in organic growth initiatives, pursuing strategic acquisitions, increasing dividend and engaging in buybacks.
Risks
Nasdaq has been incurring higher expenses that weigh on operating margin. Nasdaq expects 2024 non-GAAP operating expenses in the range of $2.145-$2.185 billion compared with the earlier guidance of $2.125-$2.185 billion.
Due to changes in corporate structure, the company expects to incur $115 million to $145 million in pretax charges, of which about 40% will be non-cash charges. This will also help unlock revenue synergies. Nasdaq estimates benefits in the form of combined annual run rate operating efficiencies and revenue synergies of at least $80 million by 2025 and $80 million in cost to accomplish the restructuring program.
Nasdaq’s debt has been increasing over the last few years, with the debt-to-equity ratio comparing unfavorably with the industry average. Lower times interest earned is also a concern.
Stocks to Consider
Some better-ranked stocks from the finance sector are Assurant, Inc. (AIZ - Free Report) , Radian Group Inc. (RDN - Free Report) and Old Republic International Corporation (ORI - Free Report) . While Assurant sports a Zacks Rank #1 (Strong Buy), Radian and Old Republic International carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 33.56%. In the past year, shares of AIZ have rallied 42.9%.
The Zacks Consensus Estimate for AIZ’s 2024 and 2025 earnings implies year-over-year growth of 6.7% and 6.1%, respectively.
Radian Group has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 21.3%. In the past year, shares of RDN have jumped 36.9%.
The Zacks Consensus Estimate for RDN’s 2024 and 2025 revenues implies year-over-year growth of 6.2% and 5.5%, respectively.
Old Republic International has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 9%. In the past year, shares of ORI have climbed 33.5%.
The Zacks Consensus Estimate for ORI’s 2024 and 2025 earnings implies year-over-year growth of 7.6% and 4.4%, respectively.
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Nasdaq Stock Rallies 42.5% in a Year: More Room for Upside?
Nasdaq, Inc. (NDAQ - Free Report) shares have rallied 42.5% over the past year compared with the industry's growth of 20.2%. The Finance sector and the Zacks S&P 500 composite have returned 28.3% and 23.5%, respectively, in the same time frame. With a market capitalization of $42.23 billion, the average volume of shares traded in the last three months was 2.76 million.
NDAQ Outperforms Industry, Sector, S&P 500
Image Source: Zacks Investment Research
The rally was largely driven by its impressive organic growth, ramping up of on-trading revenue base, strategic buyouts to capitalize on growing market opportunities and effective capital deployment.
This securities and exchanges company, carrying a Zacks Rank #3 (Hold) at present, surpassed earnings estimates in three of the last four quarters and missed in one, the average being 3.39%.
NDAQ’s Growth Projection Encourages
The Zacks Consensus Estimate for Nasdaq’s 2024 revenues is pegged at $4.65 billion, implying a year-over-year improvement of 19.4%. The consensus estimate for 2025 earnings per share and revenues indicates an increase of 12.7% and 7.1%, respectively, from the corresponding 2024 estimates. Earnings have grown 12.7% in the past five years, better than the industry average of 9.8%.
Optimistic Analyst Sentiment on NDAQ
Nine of the 10 analysts covering the stock have raised estimates for 2024, and eight analysts have raised the same for 2025 over the past 60 days. Thus, the Zacks Consensus Estimate for 2024 and 2025 moved 2.2% and 2.3% north, respectively, in the last 60 days.
NDAQ’s Favorable Return on Capital
Return on equity in the trailing 12 months was 15.4%, higher than the industry average of 13.2% as well as the intermediate-term target. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Its return on invested capital (ROIC) has increased every year. This reflects NDAQ’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 6.5%, higher than the industry average of 4.8%.
Factors Acting in Favor of Nasdaq
Nasdaq’s growth strategy encompasses generating more revenues from high-growth Market Technology and Investment Intelligence segments, forwarding R&D spending toward higher-growth products, expanding its Anti-Financial Crime clientele as well as making innovations.
The company estimates strong growth from its index and analytics businesses and moderate growth in its exchange data products across U.S. and Nordic equities.
Its inorganic growth is impressive. The Adenza Group buyout boosted its Marketplace Technology and Anti-Financial Crime solutions apart from strengthening offerings across a wider spectrum of regulatory technology, compliance and risk management solutions.
Given opportunities in the cryptocurrency markets, NDAQ is investing in proprietary data and migrating markets and SaaS solutions.
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. Verafin consolidated Nasdaq's established reg tech leadership to create a global SaaS leader. Nasdaq aims to achieve 40-50% SaaS revenues as a percentage of total revenues by 2025.
NDAQ’s Wealth Distribution
Nasdaq boasts a healthy balance sheet and cash position, along with modest operating cash flow from its diverse business model. Nasdaq continued its track record of strong free cash flow generation with $328 million in the second quarter of 2024. A healthy balance sheet ensures the distribution of wealth to shareholders in the form of dividend hikes and share repurchases. Its current dividend yield is 1.3%. Per its growth strategy, Nasdaq will bring payout ratio of 35% to 38% by 2027 and resume share buyback to offset dilution due to Adenza buyout.
Nasdaq remains committed to deploying capital effectively by de-leveraging, investing in organic growth initiatives, pursuing strategic acquisitions, increasing dividend and engaging in buybacks.
Risks
Nasdaq has been incurring higher expenses that weigh on operating margin. Nasdaq expects 2024 non-GAAP operating expenses in the range of $2.145-$2.185 billion compared with the earlier guidance of $2.125-$2.185 billion.
Due to changes in corporate structure, the company expects to incur $115 million to $145 million in pretax charges, of which about 40% will be non-cash charges. This will also help unlock revenue synergies. Nasdaq estimates benefits in the form of combined annual run rate operating efficiencies and revenue synergies of at least $80 million by 2025 and $80 million in cost to accomplish the restructuring program.
Nasdaq’s debt has been increasing over the last few years, with the debt-to-equity ratio comparing unfavorably with the industry average. Lower times interest earned is also a concern.
Stocks to Consider
Some better-ranked stocks from the finance sector are Assurant, Inc. (AIZ - Free Report) , Radian Group Inc. (RDN - Free Report) and Old Republic International Corporation (ORI - Free Report) . While Assurant sports a Zacks Rank #1 (Strong Buy), Radian and Old Republic International carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 33.56%. In the past year, shares of AIZ have rallied 42.9%.
The Zacks Consensus Estimate for AIZ’s 2024 and 2025 earnings implies year-over-year growth of 6.7% and 6.1%, respectively.
Radian Group has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 21.3%. In the past year, shares of RDN have jumped 36.9%.
The Zacks Consensus Estimate for RDN’s 2024 and 2025 revenues implies year-over-year growth of 6.2% and 5.5%, respectively.
Old Republic International has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 9%. In the past year, shares of ORI have climbed 33.5%.
The Zacks Consensus Estimate for ORI’s 2024 and 2025 earnings implies year-over-year growth of 7.6% and 4.4%, respectively.