On Sep 20, Zacks Investment Research upgraded Markit Ltd. (MRKT) by a notch to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Earnings estimates of Markit witnessed a riseon the back of sturdy second-quarter 2014 results. The company’s modest capital and favorable long-term growth outlook also instil confidence among investors.
On Aug 13, Markit reported second-quarter 2014 earnings per share (EPS) of 37 cents, which topped the Zacks Consensus Estimate by 19.4%. However, it lagged the year-ago quarter figure by 9.8%, primarily due to a 13.9% rise in operating expenses.
The top line, however, rose 11% year over year, along with organic growth of 4.3%, primarily driven by improved performance across information and solutions segments. Alongside, acquisitions supported top-line growth by 2.8%, while favorable exchange rate contributed 3.9%. These factors also led to a 7.7% rise in earnings before interest, taxes, depreciation and amortization (EBITDA) during the quarter.
With just a decade-long operating history, which is short when compared to its peers, Markit remains focused on enhancing revenues linked to customer assets under management in the loan market. The company is also gaining from new business in the information and solutions segments. Moreover, a steady shift toward fixed revenue contracts from variable ones are improving its information valuation and trading services.
Despite high debt and acquisition costs, management expects to generateorganic revenue growth of 5–7% and total revenue growth, including acquisitions, in double digits in the long run. Additionally, adjusted EBITDA margin is projected to remain steady in low- to mid-40% range.
Based on an a secure outlook, the Zacks Consensus Estimate for 2014 and 2015 rose by 3.0% and 3.2% to $1.39 and $1.29 per share, respectively, in the last 60 days. On a year-over-year basis, earnings for 2014 are expected to grow by 1.8%. Notably, no downward estimate revision was witnessed for both the years.
Other Stocks to Consider
Investors interested in financial stocks could also consider Vantiv Inc. (VNTV), Green Dot Corp. (GDOT) and Avis Budget Group Inc. (CAR). All these sport the same Zacks Rank as Markit.
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