Why Is MarketAxess (MKTX) Down 10.7% Since Last Earnings Report?

It has been about a month since the last earnings report for MarketAxess (MKTX). Shares have lost about 10.7% 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 drivers.

MarketAxess (MKTX) Q3 Earnings Beat Estimates, Down Y/Y

MarketAxess Holdings Inc. reported third-quarter 2021 earnings per share of $1.52, which outpaced the Zacks Consensus Estimate by 7%. However, the bottom line plunged 15% year over year.

The company’s results were impacted by lower revenues and escalating costs. The quarter also witnessed soft secondary trading conditions within global credit trading.

Revenues fell 1.2% year over year to $162.1 million in the quarter under review due to lower commission revenues. However, the top line beat the Zacks Consensus Estimate by 0.7%.

Commission revenues of $142.8 million declined 5.2% year over year. All other revenues comprising information services, post-trade services and other revenues, climbed 44% year over year to $19.3 million.

During the third quarter, the total credit category’s trading volumes inched up 1.3% year over year to $597.1 billion. Rates trading advanced 22.2% year over year to $929.7 billion.

Total expenses of $88.1 million increased 15.6% year over year due to rise in costs related to employee compensation and benefits; depreciation and amortization; technology and communications; and professional and consulting.

Operating income slumped 15.7% year over year to $74 million in the quarter under review.

Operating margin of 45.7% declined by 780 basis points year over year.

Financial Update (as of Sep 30, 2021)

The company exited the third quarter with total cash and cash equivalents of $432.7 million, which fell 6.1% from the level as of Dec 31, 2020.

Total assets of $1.6 billion grew 21.1% from the 2020-end figure. Total stockholders’ equity increased 10.5% from the level at 2020 end to $1.1 billion.

During the quarter, the company generated free cash flow of $105.1 million, which dipped 0.1% year over year.

Dividend Update

The company’s board of directors announced a quarterly cash dividend of 66 cents per share, which will be paid out on Nov 17, 2021 to its stockholders of record as of the close of business on Nov 3.

Share Repurchases

In the third quarter, the company bought back 9,189 shares worth $4.2 million.

Expense Outlook Revised for 2021

Expenses are now projected in the range of $360 million to $365 million, which is lower than the prior guidance of $370-$386 million.

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 an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth 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. It's no surprise MarketAxess has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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