Time To Exchange Nasdaq Stock After Its 23% Gains This Year?

NASDAQ stock (NASDAQ: NDAQ) has gained 23% YTD as compared to a 17% rise in the S&P500 index. In sharp contrast, Nasdaq’s peer CME Group (NASDAQ: CME) is up 5% YTD. Overall, at the current price of $71 per share, it is trading at the same level as its fair value – Trefis’ estimate for NASDAQ’s valuation. 

Amid the current financial backdrop, NDAQ stock has seen extremely strong gains of 75% from levels of $40 in early January 2021 to around $70 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in NDAQ stock has been far from consistent. Returns for the stock were 60% in 2021, -11% in 2022, and -4% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that NDAQ underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NDAQ face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company posted mixed results in the second quarter of FY 2024, with revenues beating expectations but earnings missing the consensus. It reported total revenues of $1.79 billion – up 25% y-o-y, which translated into net revenues (revenues less transaction-based expenses) of $1.16 billion (up 25%). The growth was mainly driven by a 79% jump in the financial technology unit, followed by an 18% increase in the market services and a 10% rise in the capital access platform segment. However, the positive impact was partially offset by a 25% increase in transaction-based expenses. On the cost front, total operating expenses as a % of revenues witnessed an unfavorable rise in the quarter. Further, interest expense was $102 million vs $36 million. It led to an adjusted net income of $222 million – down 17% y-o-y.

Moving forward, we expect NASDAQ’s total revenues to touch $7.1 billion for the full year 2024, translating into net revenues of $4.68 billion. Additionally, the adjusted net income margin is likely to remain around the previous year’s level. It will result in a GAAP EPS figure of $2.48, which coupled with a P/E multiple of just below 29x, will lead to a valuation of $71.

[1] Returns as of 8/30/2024
[2] Cumulative total returns since the end of 2016

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