Leading exchange operator – Nasdaq Group Inc. (NDAQ) is scheduled to release third-quarter 2014 financial results before the opening bell on Oct 24.
In the last reported quarter, the company delivered a positive earnings surprise of 2.9%, while its four-quarter trailing average beat stands at 3.8%. Let us see how things are shaping up for this announcement.
Earnings Whispers?
Our proven model shows that Nasdaq is not likely to beat earnings as it lacks the required combination of two key components.
Zacks ESP: Nasdaq has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of 69 cents per share and the Zacks Consensus Estimate of 70 cents, is -1.43%.
Zacks Rank: Nasdaq’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.
Sell-rated stocks (#4 and 5) are never considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum.
Major Factors at Play
Nasdaq’s trading volumes have been witnessing fluctuations in the past quarters. While volumes improved for equities (about 5%) in both the U.S. and Europe, derivative volumes declined in the latter by 11%. Equity options grew 8% in the U.S. in the third-quarter, though fixed income volumes decreased in the both the regions. Meanwhile, clearing volumes for energy contracts rose about 4% from the prior-year quarter, while average rate per contract remained weak, overall reflecting a sluggish growth pace.
Moreover, stiff competition, volatility in currency and interest rate as well as stringent regulations continue to limit organic growth. Amid these headwinds, higher debt and operating costs are expected to weigh on margins and operating leverage.
Nevertheless, Nasdaq outperformed its target of 100 initial public offerings (IPOs) in 2014, by having 140 IPOs in its kitty until the third-quarter, also beating 126 in 2013. Alongside, total listings rose 8% year over year in the third-quarter. An improved leverage (pegged at expected 2.5x at Jun 2014-end) and cash flow position will likely accelerate capital deployment and boost investor confidence, going forward.
Overall, while near-term headwinds raise ambiguity about an earnings beat this season, acquisitions and strategic growth initiatives are expected to drive growth in the long run.
Other Stocks to Consider
Here are some other financial companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
Heartland Payment Systems Inc. (HPY) has Earnings ESP of +1.7% and a Zacks Rank #1 (Strong Buy).
Everest Re Group Ltd. (RE) has Earnings ESP of +8.5% and a Zacks Rank #3 (Hold).
Intercontinental Exchange Inc. (ICE) has Earnings ESP of +1.5% and a Zacks Rank #3.
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