Yahoo Finance How Should You Play MarketAxess (MKTX) Ahead of Q1 Earnings?
With MarketAxess Holdings Inc. MKTX set to unveil its first-quarter 2024 earnings on May 7, before the market opens, investors are assessing both the potential opportunities and risks associated with the company. Despite its expanding product portfolio, overall trading volume, strategic acquisitions and partnerships and financial resilience, it comes with its set of uncertainties.
What Are the Uncertainties?
Its shares have lost 28.6% in the year-to-date period, while the industry fell 0.3% and the S&P 500 Index jumped 5.7%. Several reasons can be pointed out for the stock’s underperformance. Ongoing investments in various areas, including the trading platform, new protocols, infrastructure and additional headcount, continue to boost its expenses, affecting its profit margins.
Even the Zacks Consensus Estimate for first-quarter earnings of $1.85 per share suggests a 5.6% year-over-year decline. Apart from rising costs, the impact of a high interest-rate environment is making lower-yielding bonds less attractive in the market. This will keep MKTX’s average daily volume under pressure. Furthermore, credit volume growth is expected to be constrained by the high interest rates and the expansion of private credit, which will likely limit bond issuance.
From a valuation perspective, MKTX's forward 12-month price-to-earnings ratio stands at 27.64, above the industry’s average of 25.70. This suggests that the stock is fully priced or even overvalued at present. As such, investors may want to exercise caution before making investment decisions.
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But there are some tailwinds, too, which also should be considered.
The company pursues strategic growth through acquisitions and alliances, enhancing its market presence, offerings and technology solutions. The partnership with BlackRock to broaden global credit market connections and collaborating with S&P Dow Jones Indices to develop indices tracking the U.S. corporate bond market are some of its major alliances.
Launching products addressing specific market demands like the MKTX 400 Index, Axess All Prints and Adaptive Auto-X solutions and other products will contribute to its suite of automated trading tools. These initiatives are expected to help the company to bolster volumes in the long term.
MarketAxess also maintains a robust financial position, concluding 2023 with $451.3 million in cash and equivalents and investments, with minimal operating lease liabilities of $79.7 million. This strong liquidity not only safeguards its balance sheet but also facilitates agile capital deployment across trading platforms, new products, geographic expansion, and infrastructure. It also enables the company to take shareholder-friendly moves. It raised its quarterly dividend by 2.8% in January 2024.
Moreover, our proven model predicts a likely earnings beat for MKTX in the first quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is the case here, as MarketAxess has an Earnings ESP of +0.75% and carries a Zacks Rank #3 at present.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Final Thoughts
In conclusion, as investors assess MarketAxess' prospects ahead of its Q1 earnings release, the company confronts several challenges, including unfavorable valuation, rising costs and constraints on credit volume growth. While a cautious stance may be warranted due to signs of strategic growth initiatives and a strong financial position, the introduction of new products could help restore investor confidence. A potential earnings beat would further bolster this sentiment.
Other Stocks With a Favorable Combination
Here are some other companies from the broader Finance space, which also have the right combination of elements to beat on earnings this time around:
CleanSpark, Inc. CLSK has an Earnings ESP of +63.64% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CleanSpark’s bottom line for the to-be-reported quarter is pegged at 6 cents per share, indicating a 126.1% year-over-year improvement. It has remained stable over the past week. The consensus estimate for CLSK’s revenues is pegged at $111.1 million, suggesting a 161.1% increase from a year ago.
Atlanticus Holdings Corporation ATLC has an Earnings ESP of +21.43% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Atlanticus’ bottom line for the to-be-reported quarter is pegged at 98 cents per share, which remained stable over the past week. ATLC beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 9.7%. The consensus estimate for revenues is pegged at $309.8 million, indicating an 18.7% increase from a year ago.
Oportun Financial Corporation OPRT has an Earnings ESP of +45.83% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Oportun Financial’s bottom line for the to-be-reported quarter indicates a 95.4% year-over-year improvement. The consensus mark for OPRT’s revenues is pegged at $249.9 million.
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MarketAxess Holdings Inc. (MKTX) : Free Stock Analysis Report
Atlanticus Holdings Corporation (ATLC) : Free Stock Analysis Report
Cleanspark, Inc. (CLSK) : Free Stock Analysis Report
Oportun Financial Corporation (OPRT) : Free Stock Analysis Report
