Nasdaq's Growth Initiatives Impress Amid Escalating Costs

On Sep 1, we issued an updated research report on Nasdaq Inc. (NASDAQ:NDAQ) .

Nasdaq remains focused on growth via organic initiatives as well as acquisitions that extend entry and cross-selling opportunities in new markets at a low-cost with a highly flexible platform. The latest buyouts of International Securities Exchange and Boardvantage are in tandem with this strategy. Notably, the company achieved the first $10 million of synergies from acquisitions in the second quarter. This was the company’s first step toward a total synergy target of $40 million.

The company displays its prudence by accelerating its non-transaction revenue base, which includes technology, listing and information revenues. This has been fueling organic growth for the securities exchange. In fact, management projects consistent mid-single-digit organic growth over the next three to five years.

Nasdaq focuses on boosting operating leverage through efficient business management. This, in turn, enhances its ability to invest in new business initiatives, thereby making way for healthy long-term organic growth.

Nasdaq’s healthy balance sheet and cash position are supported by its robust operational performance. This, helps the company engage in effective capital deployment to enhance shareholders’ value.

Based on the positives, the Zacks Consensus Estimate has been witnessing upward revisions as most of the estimates were revised higher in the last 60 days. The expected long-term earnings growth is currently pegged at 9.9%.

However, escalating expenses pose risks to operating leverage, margins and growth prospects. Also, high debts, weak top line and intense competition raise concerns. To account for the anticipated impact of the acquisition of International Securities Exchange, management has raised the operating expense guidance by $35 million to the range of $1.22–$1.27 billion in 2016. Also, weak cash equity trading revenues as well as sluggish derivative trading and clearing revenues in both the U.S. and Europe are concerns.

Zacks Rank and Stocks to Consider

Currently, Nasdaq has a Zacks Rank #3 (Hold). Some better-ranked securities exchanges are Bats Global Markets (NYSE:BATS) , CME Group Inc. (NASDAQ:CME) and MarketAxess Holdings Inc. (NASDAQ:MKTX) . Each of these carry Zacks Rank #2 (Buy).

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