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Here's Why Hold is an Apt Strategy for Nasdaq (NDAQ) Stock Now

Nasdaq Inc.’s NDAQ accelerating organic growth, focus on ramping up the on-trading revenue base, strategic buyouts to capitalize on growing market opportunities, effective capital deployment along with favorable growth estimates make it worth retaining in one’s portfolio.

NDAQ has a decent track record of beating earnings estimates in three of the last four quarters, the average being 3.38%. Earnings have grown 13.6% in the past five years, outperforming the industry average of 10.5%.

Zacks Rank & Price Performance

Nasdaq currently carries a Zacks Rank #3 (Hold). In a year, the stock has lost 1.4% against the industry’s increase of 10.2%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Optimistic Growth Projections

The Zacks Consensus Estimate for Nasdaq’s 2023 earnings is pegged at $2.69 per share, indicating a 1.1% increase from the year-ago reported figure on 4.3% higher revenues of $3.7 billion. The consensus estimate for 2024 earnings is pegged at $2.88, indicating a 7.2% increase from the year-ago reported figure on 5.4% higher revenues of $3.9 billion.

The expected long-term earnings growth rate is currently pegged at 4.4%.

Return on Equity

Return on equity was 22.1% in the trailing twelve months, better than the industry average of 10.3%.

Growth Drivers

Nasdaq remains focused on generating more revenues from high-growth Market Technology and Investment Intelligence segments and diverting R&D spending toward higher-growth products. This in turn should accelerate its growth. The company targets 5-7% long-term growth from a non-trading revenue base and 7-10% organic growth.

Nasdaq has been accelerating its technology expansion, given the opportunities offered by the cryptocurrency markets. Technology expansion with SMARTS surveillance in non-financial markets is in tandem with this growth strategy.

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. It thus projects 18-23% revenue growth in Anti-Financial Crime over the next three-five-year period.  The acquisition of Verafin in February 2021 consolidated Nasdaq's established reg tech leadership to create a global SaaS leader. Nasdaq aims more than 50% Saas revenues as a percentage of total revenues by 2027.

It also boasts an impressive inorganic growth story. The buyout of Puro.earth and Metrio will help NDAQ address expanding client ESG needs.

NDAQ estimates 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 or Capital Access Platform, 13%-16% in Market Technology and 3%-5% in Corporate Platform segments over the medium term. Organic revenues at Data & Listing Services are expected to grow in the low single digit. Index revenues are expected to grow in mid-to-high single digit and Workflow and Insights revenues are expected to witness high-single to low-double-digit growth over the medium term.

NDAQ estimates revenues from new growth initiatives to be more than 60 million by 2025.

A diverse business model supports modest operating cash flow, aiding Nasdaq to build a healthy balance sheet and cash position.

However, due to a change in corporate structure, NDAQ expects 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 is estimating benefits in the form of combined annual run rate operating efficiencies and revenue synergies of at least $30 million by 2025. NDAQ also estimates average annual organic expense growth of 4-7% in the three-to-five-year period.

Prudent Capital Deployment

Banking on operational excellence, Nasdaq has raised dividends at a five-year CAGR (2018-2022) of 10%. With consistent dividend growth, it expects 35-38% payout ratio by 2027.  It had $650 million remaining under authorization as on Dec 31, 2022. It estimates double-digit total shareholders’ return.

Stocks to Consider

Some better-ranked stocks from the finance sector are Arbor Realty Trust ABR, ACRES Commercial Realty ACR and Alexander & Baldwin Holdings. ALEX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arbor Realty’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 24.51%. In the past year, ABR has rallied 10.3%

The Zacks Consensus Estimate for ABR’s 2024 earnings indicates 3.6% year-over-year growth.

ACRES Commercial’s earnings surpassed the Zacks Consensus Estimate in three of the last four quarters, while missed in one. In the past year, ACR has lost 13.2%.

The Zacks Consensus Estimate for ACR’s 2023 and 2024 earnings indicates 88.9% and 2.3% year-over-year growth.

Alexander & Baldwin Holdings’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 49.39%. In the past year, ALEX has rallied 39.4%.

The Zacks Consensus Estimate for ALEX’s 2024 earnings indicates 7.2% year-over-year growth.i

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