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Investment idea - Nasdaq

Nasdaq OMX (NDAQ) is a US corporation that owns and operates the NASDAQ stock market and eight European stock exchanges. Securities of more than 3,600 companies with a total market value of USD 8.8 tn are listed at this stock exchange. Nasdaq is a leading US stock exchange by IPO volume. In addition, 80% of all US-based IPOs in 3Q15 were held on Nasdaq.

Nasdaq recently announced that its subsidiary has acquired SecondMarket Solutions, Inc., an American SaaS company that provides transaction software to private companies and investment funds looking to do tender offers or share buybacks. In our opinion, this transaction will strengthen the company’s position as a provider of solutions to raise startup capital and will improve its financial performance.

Nasdaq recently released strong financial results for 3Q15. Quarterly revenue rose 6.4% y-o-y, outpacing the median consensus by 1.0%. Excluding the negative impact of devaluation effects, revenue was up 9% y-o-y. Adjusted operating profit increased 10.0% y-o-y, while adjusted operating margin climbed 1.5 pps y-o-y. Adjusted EPS jumped 12.8% y-o-y to 88 cents, outstripping expectations by 2.3%. Information services (+15.8% y-o-y) became a revenue growth driver due to the acquisition of Dorsey Wright (a consulting corporation). Based on Q2 results, quarterly dividend reached USD 0.25 (+66.7% y-o-y), yielding 1.7%. The company continued to buy back its shares during the reporting quarter and spent USD 255 mn for this purpose. Nasdaq still has USD 226 mn left for buyback.

I believe that Nasdaq will continue to improve its financial performance due to recovery of the US economy and the recent acquisition. These factors, coupled with higher dividend and the buyback program will boost the company’s mid-term capitalization. I left my target fundamental valuation of Nasdaq OMX (NDAQ) shares unchanged at USD 65 and assign a Buy recommendation to the name in the mid-term. The short-term technical target is USD 60.