Yahoo Finance MarketAxess (MKTX) Down 2.9% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for MarketAxess (MKTX). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MarketAxess due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
MarketAxess Q1 Earnings Beat on Strong Credit Trading
MarketAxess reported first-quarter 2024 earnings per share of $1.92, which surpassed the Zacks Consensus Estimate by 3.8%. Yet, the bottom line slipped 2% year over year.
Total revenues of $210 million rose 4% year over year. However, the top line fell short of the consensus mark by a whisker.
The quarterly results were driven by a solid improvement in U.S. high-grade commission revenues. Geographic expansion and product diversification drove the average daily volume (“ADV”) of emerging markets and Eurobonds. However, the upside was partly offset by lesser trading activity of U.S. high-yield and an elevated expense level.
Quarterly Operational Update
Commission revenues totaled $184.9 million, which inched up 1.6% year over year but missed the Zacks Consensus Estimate of $185.3 million and our estimate of $185.6 million. Information services revenues advanced 7.9% year over year to $11.9 million. The figure lagged the consensus mark of $12.3 million but matched our estimate. The metric benefited on the back of net new data contract revenues.
Post-trade services revenues of $10.7 million improved 7.5% year over year, attributable to price increases and net new contract revenues. The reported figure beat our estimate of $10.3 million. Revenues from the Pragma acquisition were $7.5 million.
Total expenses of $117.8 million escalated 9.3% year over year due to higher employee compensation and benefits, technology and communication expenses and clearing costs. However, the metric fell short of our estimate of $124.5 million.
MarketAxess’s operating income fell 3% year over year to $92.5 million, higher than our estimate of $85.8 million. EBITDA of $109.3 million dipped 1% year over year while EBITDA margin deteriorated 250 bps to 51.9%.
Trading Volumes in Detail
The high-grade trading volume of MarketAxess was $456 billion, which advanced 16.1% year over year and outpaced the Zacks Consensus Estimate of $436.3 billion. The ADV of the same product category improved 18% year over year to $7.5 billion, higher than the consensus mark of $7.1 billion and our estimate of $6.7 billion.
However, high-yield trading volume plunged 30.5% year over year while its ADV fell 29.4% due to a reduced level of credit spread volatility.
Other credit trading volume tumbled 8.2% to $26.3 billion whereas ADV of the same product category slipped 6.5% year over year to $432 million.
Trading volume and ADV of emerging markets rose 15.4% and 17.3%, respectively, on a year-over-year basis. The Eurobonds’ trading volume and ADV rose 8.9% and 10.6%, respectively, on a year-over-year basis.
Total credit trading volume of $918 billion advanced 7.4% year over year and surpassed the Zacks Consensus Estimate of $897 billion and our estimate of $873.5 billion. Total credit ADV rose 9.2% year over year to $15 billion, higher than the consensus mark of $14.3 billion and our estimate of $14.1 billion.
Total rates’ trading volume plunged 29% while ADV of this product category dropped 27.9% year over year.
Balance Sheet (As of Mar 31, 2024)
MarketAxess exited the first quarter with cash and cash equivalents of $376.7 million, which declined 16.5% from the 2023-end level. Total assets of $1.9 billion decreased 4.4% from the figure at 2023 end.
The company had no outstanding borrowing under its credit facility at the first-quarter end. Total stockholders’ equity of $1.3 billion grew 2% from the 2023-end level.
Cash Flows
Cash used in operations amounted to $4.9 million against cash generated from operations of $7.5 million in the prior-year quarter. Free cash flow was recorded at $30.9 million, which tumbled 29.4% year over year.
Capital Deployment Update
MarketAxess bought back shares worth $10.1 million. A leftover capacity of $89.9 million remained in place under the company’s authorized repurchase program as of Mar 31, 2024.
Management approved a quarterly cash dividend of 74 cents per share, which will be paid out on Jun 5, 2024, to shareholders of record as of May 22, 2024.
2024 Guidance
Management continues to anticipate revenues from the Pragma acquisition to grow in mid-single digits while expenses are expected within the range of $33-$35 million.
Total expenses (including the Pragma acquisition) continue to be estimated between $480 million and $500 million but the metric is expected to stay at the lower end of the guided range.
Capital expenditure continues to be projected between $60 million and $65 million while the effective tax rate is reaffirmed to lie between 24% and 25%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, MarketAxess has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MarketAxess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
MarketAxess belongs to the Zacks Securities and Exchanges industry. Another stock from the same industry, IntercontinentalExchange (ICE), has gained 1.5% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
ICE reported revenues of $2.29 billion in the last reported quarter, representing a year-over-year change of +20.8%. EPS of $1.48 for the same period compares with $1.41 a year ago.
For the current quarter, ICE is expected to post earnings of $1.46 per share, indicating a change of +2.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for ICE. Also, the stock has a VGM Score of D.
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MarketAxess Holdings Inc. (MKTX) : Free Stock Analysis Report
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