Here's Why Investors Should Hold MarketAxess Stock

MarketAxess Holdings Inc. MKTX is benefiting from increased trading volumes, a robust Open Trading platform, acquisitions and partnerships, as well as solid cash-generating abilities.  

Zacks Rank & Price Performance

MarketAxess carries a Zacks Rank #3 (Hold) at present. 

The stock has gained 8.1% in the past six months, in line with the industry.

Image Source: Zacks Investment Research

Robust Growth Prospects

The Zacks Consensus Estimate for MarketAxess' 2024 earnings is pegged at $7.06 per share, which indicates a year-over-year improvement of 3.1% from the 2023 reported figure. The consensus mark for revenues is pegged at $813.2 million, implying a year-over-year increase of 8.1% from the 2023 figure.

The consensus estimate for 2025 earnings is pegged at $7.97 per share, which indicates a year-over-year increase of 12.9% from the 2024 estimated figure. The consensus estimate for revenues is pegged at $909.7 million, implying a year-over-year improvement of 11.9% from the 2024 estimated figure.

Northbound Estimate Revision

The Zacks Consensus Estimate for 2024 earnings has been revised 0.7% upward in the past 30 days.

Decent Earnings Surprise History

MKTX's earnings beat estimates in three of the trailing four quarters and missed the mark once, the average surprise being 2.63%.

Solid Return on Equity

The return on equity for MKTX is 20.4%, which is higher than the industry average of 13.2%. This substantiates the company's efficiency in utilizing shareholders' funds.

Business Tailwinds

MarketAxess continues to benefit from higher trading volumes, a key driver of commissions, which are the most significant contributor to MKTX's overall revenues. The company has achieved consistent top-line growth for more than a decade, which is impressive. In the first half of 2024, it reported an average daily volume of $33.4 billion, indicating a 1% year-over-year increase.

As a leading electronic platform operator, MarketAxess has gained significant market share across its diversified product suite, including U.S. High-Grade, U.S. High-Yield, Eurobonds and Emerging Markets. The company pursues acquisitions and partnerships to enhance its product offerings, explore new markets, introduce new products or services and expand its reach in the fixed-income markets.

MarketAxess has a strong presence in the Open Trading marketplace, which provides price improvements for clients, reduces risk in fixed-income markets and lowers transaction costs. Leveraging its Open Trading platform, the company aims to further digitize product areas that have yet to see full trading electronification.

Beyond its U.S. client base, MKTX serves an extensive international clientele of more than 1,000 active firms that access its platform through regulated venues in Europe, Asia and Latin America. The company continues to invest in building relationships with overseas clients, which is expected to sustain revenues from international markets in the future.

To maintain a competitive edge and support growth initiatives, MarketAxess relies on a solid financial foundation. The company has substantial cash reserves and generated operating cash flows of $113.9 million in the first half of 2024, which inched up 0.9% from the prior-year comparable period. These strong cash flows not only support business investments but also allow MKTX to engage in share buybacks and dividend payments.

Risks

Despite the upside potential, there are a few factors that investors should keep an eye on.

MarketAxess has experienced rising expenses over the past few years due to ongoing investments in its trading platform, new protocols, infrastructure and additional staff. These investments are likely to keep costs elevated.

Meanwhile, the Federal Reserve's rate hikes to curb inflation have led to higher bond yields, making lower-yielding bonds less appealing to investors. This increase in bond yields, combined with the shorter duration of U.S. high-grade bonds, may result in a lower fee capture, potentially impacting the company's revenue growth.

Stocks to Consider

Some better-ranked stocks in the Finance space are Citizens Community Bancorp, Inc. CZWI, Ally Financial Inc. ALLY and CrossFirst Bankshares, Inc. CFB. While Citizens Community Bancorp sports a Zacks Rank #1 (Strong Buy), Ally Financial and CrossFirst Bankshares carry a Zacks Rank #2 (Buy) each at present.

Citizens Community Bancorp's earnings surpassed estimates in three of the trailing four quarters and matched the mark once, the average surprise being 35.50%. The Zacks Consensus Estimate for CZWI's 2024 earnings indicates a rise of 1.6% from the year-ago figure. The consensus mark for CZWI's earnings has moved 6.6% north in the past 30 days.

The bottom line of Ally Financial beat estimates in each of the trailing four quarters, the average surprise being 24.71%. The Zacks Consensus Estimate for ALLY's 2024 earnings indicates an improvement of 15.1% while the consensus mark for revenues implies growth of 0.6% from the corresponding year-ago figures. The consensus mark for ALLY's earnings has moved 2.6% north in the past 30 days.

CrossFirst Bankshares' earnings outpaced estimates in each of the last four quarters, the average surprise being 8.79%. The Zacks Consensus Estimate for CFB's 2024 earnings indicates an improvement of 4.1% while the consensus mark for revenues implies growth of 5.1% from the corresponding year-ago figures.  The consensus mark for CFB's earnings has moved 1.3% north in the past 30 days.

Shares of Citizens Community Bancorp, Ally Financial and CrossFirst Bankshares have gained 10%, 15.6% and 31.4%, respectively, in the past six months.

To read this article on Zacks.com click here.