On Tuesday, BofA Securities increased the price target on Tradeweb Markets (NASDAQ:TW) to $120 from $111, while reaffirming a Buy rating on the company's shares. The adjustment follows a robust performance in trading volumes, especially in swaps and cash credit markets.
The firm's analyst highlighted an 18% rise in long duration swaps volume and a 29% increase in US credit volume through February compared to the fourth quarter of 2023. These gains are attributed to both structural and cyclical factors, with Tradeweb expanding its market share in the US SEF and IG TRACE markets significantly throughout 2023.
Further contributing to the optimistic outlook, Tradeweb saw a 35% year-over-year increase in credit issuance, buoyed by market uncertainty around the Federal Reserve's policy direction. This environment has led BofA Securities to revise its medium-term (MT) swaps volume growth estimates to an annual rate of 20%.
Moreover, the analyst noted that Tradeweb's focus on emerging markets has prompted an upward revision of MT growth estimates for Other Government Bonds and Other Credit to 30% from 20%. This comes after the YieldBroker acquisition, which since September has seen a 24% and 18% volume increase in these categories, respectively.
However, the positive revisions were slightly tempered by headwinds from fixed price minimum (FPM) trades. The first quarter of 2024 experienced record compression activity in swaps, which tend to be lower margin trades. Additionally, municipal bond volumes, which have the highest FPM cash credit component, declined by 29% sequentially, a normalization after tax loss harvesting at the end of 2023.
In conclusion, the reinforced price target of $120 reflects a 15% total return potential, as per BofA Securities' analysis, based on Tradeweb's strong momentum and strategic market positioning.
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