Here's Why You Should Hold Nasdaq Stock in Your Portfolio Now
Nasdaq NDAQ is poised to grow on organic revenue growth, initiatives that enable entry and cross-selling opportunities in new markets at a low-cost and highly-flexible platform, focus on Market Technology and Information Services businesses, and a healthy balance sheet. The stock carries an impressive Growth Score of B. The Growth Score analyzes a company’s growth prospects.
Why Hold is an Apt Strategy?
The Zacks Consensus Estimate for 2020 and 2021 has moved up 0.3% each in the past 30 days, reflecting analysts’ optimism. Shares of Nasdaq have gained 15.8% year to date against the industry's decrease of 0.7%. Meanwhile, the Zacks S&P 500 composite has risen 2.3%. Nasdaq delivered earnings beat in each of the last six quarters.
Nasdaq’s strategy of accelerating its non-trading revenue base, which includes market technology, listing and information revenues, has been driving organic growth. Nasdaq expects Market Technology organic revenues to grow 8-11% and Information Services organic revenues to grow 5-7% over the medium term. Corporate Services’ organic revenues are estimated to grow 3.5%.
The company stays focused on improving operating leverage and targets 5% to 7% organic revenue growth from non-trading segments over the medium term against about 3% operating expense growth. For 2020, Nasdaq tightened its adjusted operating expense guidance to a range of $1.33 billion to $1.36 billion from $1.32 billion to $1.37 billion guided earlier.
This Zacks Rank# 3 (Hold) company has invested $1.2 billion in growth platforms and targets a significant share of more than $22 billion addressable market.
Nasdaq boasts a healthy balance sheet and cash position along with modest operating cash flow from its diverse business model. Its free cash flow yield of 4.9% betters the S&P 500’s yield of 4.1%.
Its healthy balance sheet enables shareholder-friendly moves. Dividends increased at a five-year CAGR (2016-2020) of 13.5% while it had $480 million under its share repurchase authorization as of Jun 30, 2020. Dividend payout of 39% currently yields 1.6%, higher than the industry average of 1.5%.
The Zacks Consensus Estimate for 2020 and 2021 earnings indicates 17.2% and 2.1% year-over-year increase, respectively. The expected long-term earnings growth rate is pegged at 8.6%, better than the industry average of 6.6%.
The company has been continually improving its return on equity (ROE) since 2014. ROE of 16.9% in the trailing twelve months was better than the industry average of 12.3%, reflecting the company’s efficiency in utilizing shareholders’ fund. Nasdaq targets double-digit total shareholders return.
Stocks to Consider
Some better-ranked companies in the finance sector include OTC Markets Group OTCM, First American Financial Corporation FAF and Alleghany Corporation Y, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
OTC Markets Group delivered earnings surprise of 38.46% in the last-reported quarter.
First American Financial delivered earnings surprise of 26.51% in the last-reported quarter.
Alleghany delivered earnings surprise of 158.90% in the last-reported quarter.
More Stock News: This Is Bigger than the iPhone!
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