Nasdaq NDAQ shares have surged roughly 30% in the last two weeks and its earnings revisions have climbed amid the broader coronavirus economic downturn. So, let’s dive into why investors might want to consider buying shares of the tech-heavy stock exchange operator right now.
Why Nasdaq
The Nasdaq is a stock exchange powerhouse of global significance, alongside the New York Stock Exchange and others. The tech-heavy Nasdaq played a role in helping companies like Apple AAPL and Microsoft MSFT become the titans they are today and was a financial pioneer, as the world’s first all-electronic stock exchange.
Today, Nasdaq lists thousands of companies and its index is widely tracked as a proxy for the overall health of the market and the tech sector of the economy.
Nasdaq breaks down its business into four broader units: Market Services, Corporate Services, Information Services, and Market Technology. The firm’s Market Services segment is its largest, accounting for roughly 35% of total fourth quarter revenue, while Market Technology is the smallest at 15%. Overall, Nasdaq is a diverse operation that makes money from listing fees, transaction fees, market data access fees, and more.
The company’s fiscal 2019 revenue climbed marginally to $2.54 billion. Investors should note that Nasdaq’s non-trading segments jumped 10%, while its Market Services sales dipped 5% “from a multi-year annual high in 2018 as volatility and volumes receded.”
Nasdaq is also in the midst of what it calls a “strategic pivot.” CEO Adena Friedman said in prepared Q4 remarks that “while still in the early stages of repositioning Nasdaq as a technology and analytics provider, we enter 2020 with clear momentum carried over from our strong finish in 2019, and will continue working to open additional areas of opportunity as the year progresses.”
Other Fundamentals
On March 15, the company put out a statement regarding its North American operations that helped assure markets, investors, companies, and the economy that things would run smoothly during these uncertain times.
The company noted that “all electronic equities, options, and fixed income markets remain fully operational, and that “new listings and Initial Public Offerings continue as scheduled.” Nasdaq said that its “operations have been tested over time to function successfully in remote environments. This includes the company's market infrastructure operations, index, analytics, technology, governance, investor relations, and surveillance businesses.”
On top of that, the coronavirus has led to increased trading volatility, which is reflected in Nasdaq’s February 2020 volume data. Meanwhile, investors can see that NDAQ stock has outpaced the S&P 500 average over the last five years, up 88%. More recently, the stock is up 7% in the last year, compared to the S&P’s 12% decline.
The company has also outpaced its peer group in 2020, down 11% and its 31% jump in the last two weeks tops this same group’s 27%. Nasdaq is part of our Zacks Securities and Exchanges industry that rests in the top 4% of our more than 250 Zacks industries and includes the likes of CME Group CME, MarketAxess MKTX, Cboe Global Markets CBOE, and Intercontinental Exchange Inc. ICE (NYSE:ICE).
Nasdaq also consistently raises its dividend and its current yield rests at 2.00%. This tops the 10-year U.S. Treasury’s 0.59% and its industry’s 1.58% average. Plus, NDAQ has historically traded at a discount compared to its industry and is currently trading at 16.7X forward 12-month Zacks earnings estimates. This comes in below its industry’s 18.3X average and its own three-year median of 17.5X.
Bottom Line
Our current Zacks estimates call for Nasdaq’s revenue to jump nearly 5% in both fiscal 2020 and 2021. At the bottom end of the income statement, the company’s adjusted FY20 earnings are projected to climb 10%, with 2021 set to pop another 8% higher.
The nearby chart shows that NDAQ’s earnings revisions activity has also climbed to help it earn a Zacks Rank #1 (Strong Buy) right now. And Nasdaq boasts a solid history of quarterly earnings beats and it is set to release its Q1 financial results on April 22.
Nasdaq stock popped over 1% on Friday to over $95 per share, as the broader market slipped. Despite its recent jump, the stock rests roughly 20% off its 52-week highs. Therefore, some investors might want to consider buying a small amount of NDAQ for its ability to expand in this volatile coronavirus-driven market, alongside its dividend, value, and more.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Microsoft Corporation (NASDAQ:MSFT): Free Stock Analysis Report
Apple Inc. (NASDAQ:AAPL): Free Stock Analysis Report
Cboe Global Markets, Inc. (CBOE): Free Stock Analysis Report
Intercontinental Exchange Inc. (ICE): Free Stock Analysis Report
CME Group Inc. (NASDAQ:CME): Free Stock Analysis Report
Nasdaq, Inc. (NDAQ): Free Stock Analysis Report
MarketAxess Holdings Inc. (MKTX): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research