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Here's Why Hold Strategy is Appropriate for Nasdaq (NDAQ)

Nasdaq Inc. NDAQ is well poised for growth on the back of a non-trading revenue base, strategic buyouts to capitalize on growing market opportunities and effective capital deployment.

Earnings Surprise History

Nasdaq has a decent earnings surprise history. It beat estimates in three of the last four quarters and missed in one, with the average being 3.38%.

Zacks Rank & Price Performance

Nasdaq currently carries a Zacks Rank #3 (Hold). In the past year, the stock has lost 10.1% compared with the industry’s decline of 20.6%.

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 $2.70, indicating a 1.5% increase from the year-ago reported figure on 4.3% higher revenues of $3.74 billion. The consensus estimate for 2024 earnings is $2.90, indicating a 7.4% increase from the year-ago reported figure on 5.4% higher revenues of $3.94 billion.

Return on Equity

The company’s return on equity (ROE) was 22.1% in the trailing 12 months, better than the industry average of 10.3%. Moreover, ROE expanded 230 basis points year over year.

Business Tailwinds

Nasdaq remains focused on repositioning its business and aims to generate revenues from high growth Market Technology and Investment Intelligence segments. It has diverted research and development (R&D) spending toward higher-growth products. At the same time, NDAQ has divested non-core assets to intensify its growth focus. The company targets 5-7% long-term growth from a non-trading revenue base.

Nasdaq’s technology expansion with SMARTS surveillance in nonfinancial markets testifies the company’s focus to capitalize on emerging opportunities in the cryptocurrency markets. It remains focused on expansion of Trade Surveillance, data analytics and integrity solutions.

The anti-financial crime technology business should continue to gain from increased demand for Verafin's fraud and anti-money laundering 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. Nasdaq aims 40-50% Saas revenues as a percentage of total revenues by 2025.

Nasdaq also boasts an impressive inorganic growth story. The buyout of Metrio and will help NDAQ address expanding client ESG needs. In June 2022, Nasdaq acquired Metrio. The acquisition expanded the corporate serving ESG solution set and complemented the framework-based approach of the existing OneReport solution.

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 organic revenue growth of 5-8% in Investment Intelligence, 13-16% in Market Technology and 3-5% in Corporate Platform over the medium term.

Nasdaq boasts a healthy balance sheet and cash position along with modest operating cash flow from its diverse business model. Banking on balance sheet strength, it engages in effective capital deployment.

Nasdaq has been hiking dividends at a five-year CAGR (2018-2022) of 9.6%. It had $650 million remaining under authorization as on Dec 31, 2022.

Stocks to Consider

Some top-ranked stocks from the finance sector are Victory Capital Holdings, Inc. VCTR, Portman Ridge Finance Corporation PTMN and AssetMark Financial Holdings, Inc. AMK, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Victory Capital’s earnings surpassed the Zacks Consensus Estimate in three of the last four quarters and missed the same in one, the average beat being 0.02%. In the past year, VCTR has gained 7.7%.

The Zacks Consensus Estimate for VCTR’s 2023 and 2024 earnings indicates 0.4% and 10.4% year-over-year growth, respectively.

Portman Ridge Finance’s earnings surpassed the Zacks Consensus Estimate in one of the last four quarters and missed in the other three, the average beat being 4.75%. In the past year, PTMN has declined 14.3%.

The Zacks Consensus Estimate for Portman Ridge Finance’s 2023 earnings indicates 4% year-over-year growth.

AssetMark Financial’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 7.95%. In the past year, AssetMark Financial has rallied 44.2%.

The Zacks Consensus Estimate for AMK’s 2023 and 2024 earnings indicates 24.2% and 6.2% year-over-year growth, respectively.

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Nasdaq, Inc. (NDAQ) : Free Stock Analysis Report

Victory Capital Holdings, Inc. (VCTR) : Free Stock Analysis Report

Portman Ridge Finance Corporation (PTMN) : Free Stock Analysis Report

AssetMark Financial Holdings, Inc. (AMK) : Free Stock Analysis Report

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