NASDAQ (NASDAQ: NDAQ) is scheduled to report its fiscal Q1 2021 results on Wednesday, April 21. We expect NASDAQ to edge ahead of the consensus estimates for revenues, while the earnings are likely to miss the expectations. The exchange managed to surpass the revenues and earnings estimates in each of the last two quarters. The company reported strong performance in 2020, with higher U.S. trading volumes boosting the Market Services revenues in each of the four quarters of the year – the segment contributed 38% in net revenues (Total Revenues less transaction rebates and exchange fees) as per 2020 data. Further, its non-trading revenues also witnessed organic growth in the year, led by a 17% y-o-y jump in the information services segment – 31% of the net revenues. We expect the same trend to drive the first-quarter FY2021 results as well.
Our forecast indicates that NASDAQ’s valuation is around $158 per share, which is marginally below the current market price of around $160. Look at our interactive dashboard analysis on NASDAQ’s pre-earnings: What To Expect in Q1? for more details.
(1) Net revenues expected to be ahead of consensus estimates in Q1
Trefis estimates NASDAQ’s fiscal Q1 2021 net revenues to be around $821 million, marginally above the $809 million consensus estimate. NASDAQ’s total revenues of $5.6 billion for the full year 2020 were 32% ahead of the 2019 figure. This translated into net revenues of $2.9 billion – up 15% y-o-y, due to higher transaction rebates and exchange fees as a % of revenues. The growth in net revenues could be attributed to two factors – first, 21% y-o-y jump in the market services segment as compared to the CAGR of 3% over 2016-2019, primarily due to higher trading volumes which benefited trading & clearing revenues; second, 17% y-o-y rise in the information services segment due to growth in market data, index, and analytics revenues. We expect the same momentum to continue in the first quarter of FY2021.
Although the non-trading revenues are likely to continue their positive growth trajectory, market services revenues are likely to suffer as the unusually higher U.S. trading volumes normalize in the subsequent quarters, with improvement in the economic conditions. Overall, this will slightly reduce the NDAQ’s revenues to around $5.5 billion in FY2021. Our dashboard on NASDAQ’s revenues offers more details on the company’s segments.
2) EPS likely to miss the consensus estimates
NASDAQ’s Q1 2021 adjusted earnings per share is expected to be $1.57 per Trefis analysis, almost 9% below the consensus estimate of $1.72. The company’s net income grew 21% y-o-y to $933 million in 2020. It was driven by positive revenue growth and lower operating expenses as a % of net revenues from 59.9% to 57.5%. This improved the EPS figure from $4.63 to $5.59. We expect the same trend to continue in the FY2021 Q1 results.
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NASDAQ’s revenues are likely to see a marginal drop in FY2021. Further, the net income margin is likely to remain close to the 2020 level. Overall, it will enable NDAQ to report an EPS of around $5.36 in the current year.
(3) Stock price estimate largely around the current market price
Going by our NASDAQ’s valuation, with an EPS estimate of around $5.36 and a P/E multiple of just below 30x in fiscal 2021, this translates into a price of $158, which is marginally below the current market price of around $160.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
While NASDAQ stock is trading close to its fair value, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Southern Copper vs. Tempur Sealy International shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.