On Tuesday, Goldman Sachs adjusted its stance on Nasdaq OMX Group Inc. (NASDAQ:NDAQ), upgrading the stock from Neutral to Buy and increasing the price target to $73 from the previous $61. The investment firm anticipates a significant uptick in the company's earnings growth over the next two years.
The upgrade comes after a period of modest earnings growth for Nasdaq OMX, with a compound annual growth rate (CAGR) of just 5% from 2021 to the estimated figures for 2024. However, Goldman Sachs expects the earnings trajectory to accelerate to around 12% in 2025 and 2026. This optimistic forecast is supported by several factors identified by the firm.
One of the key drivers for this growth is the integration of Adenza, which is expected to enhance Nasdaq OMX's financial technology revenue growth. This segment currently accounts for 36% of the total revenue and is projected to reach the higher end of the company's long-term target of 10%-14%.
Additionally, cyclical tailwinds are anticipated to benefit the company, including resilient US Cash Equity and Options volumes, robust growth in the Index business, an improving outlook for Listings, and shorter sales cycles.
Goldman Sachs also points out that Nasdaq OMX is likely to de-leverage its balance sheet faster than management's targets. This could lead to the possibility of earlier-than-anticipated share repurchases as early as 2025. The firm notes that management may shift its focus towards organic growth rather than mergers and acquisitions moving forward.
The revised price target and upgraded rating reflect Goldman Sachs' confidence in Nasdaq OMX's potential for revenue growth and operational efficiency, setting a positive outlook for the stock in the coming years.
InvestingPro Insights
As Goldman Sachs upgrades Nasdaq OMX Group Inc. (NASDAQ:NDAQ) to a 'Buy' status, the latest metrics from InvestingPro provide a comprehensive financial snapshot for investors considering this stock. Nasdaq OMX has a robust Market Cap of $35.4 billion and is trading at a Price/Earnings (P/E) Ratio of 29.1, with a slight adjustment in the last twelve months of 2023 to 28.7. This indicates a relatively high valuation compared to earnings, which is a point of consideration for potential investors.
InvestingPro Tips highlight that Nasdaq OMX has raised its dividend for 12 consecutive years and maintained these payments for 13 years, showcasing a reliable return to shareholders. Furthermore, the stock has experienced a significant price uptick over the last six months, with a 28.24% total return. This performance aligns with the positive outlook from Goldman Sachs, although analysts do anticipate a sales decline in the current year. For investors looking for deeper analysis and additional insights, there are more InvestingPro Tips available at https://www.investing.com/pro/NDAQ. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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