Leading exchange operator – Nasdaq Group Inc. (NDAQ) is scheduled to release third-quarter 2014 financial results before the opening bell on Jan 28, 2015.
In the last reported quarter, the company delivered a positive earnings surprise of 2.9%, while it kept the earnings streak alive with the four-quarter trailing average beat of 2.9%. 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 nil Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of 74 cents per share is at par with the Zacks Consensus Estimate.
Zacks Rank: Nasdaq’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings beat. Hence, this combination of Zacks Rank #3 and nil ESP deters us from making a conclusive outcome.
Sell-rated stocks (#4 and 5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum.
Factors to Consider
Nasdaq’s trading volumes witnessed fluctuations in the past quarters. Volumes improved for equities in both the U.S. (11.3%) and Europe (16.6%) in 2014. However, equity options dipped 0.7% in the U.S. in 2014, while derivative volumes in Europe declined 8.6%.
Even fixed income volumes decreased in both regions. Meanwhile, clearing volumes for energy contracts decreased about 7% from 2013, while average rate per contract remained weak, overall reflecting a sluggish growth pace.
Amid low top-line visibility, higher expenses are major headwinds. Total core operating expenses (excluding expenses related to incremental new initiative spending) are likely to grow about 7–9% in 2014, thereby weighing on margins. Regulatory challenges, intense competition and volatile currencies are other factors hampering growth.
On the other hand, Nasdaq’s initial public offerings (IPOs) remained strongest in 2014, outperforming its own target of 100, by having about 170 IPOs in its kitty at 2014-end, also beating 126 in 2013. Alongside, the company’s focus on acquisitions and organic initiatives that will enable entry and cross-selling opportunities into new markets on a low-cost and highly flexible platform.
In this regard, extended technology alliances with exchanges in Poland, Japan and other emerging economies during fourth-quarter 2014, as well as initiatives to boost its global index business and non-transaction-based revenues are expected to drive results.
Moreover, Nasdaq’s capital remains secure with strong cash flow and debt reduction, thereby enabling effective capital deployment.
While near-term growth laggards raise caution about an earnings beat this season, Nasdaq’s organic and inorganic growth strategies are expected to brighten its long-term growth prospects.
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:
Ladder Capital Corp. (LADR) has Earnings ESP of +3.45% and a Zacks Rank #1 (Strong Buy).
CIT Group Inc. (CIT) has Earnings ESP of +5.38% and a Zacks Rank #2(Buy).
MarketAxess Holdings Inc. (MKTX) has Earnings ESP of +3.85% and a Zacks Rank #2.
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