NASDAQ Stumbles on Q3 Sales: Buy or Sell?

On an otherwise up day for the Dow, shares of NASDAQ Inc. (NDAQ) fell after its third-quarter report. Is this the first sign of trouble for the financial services company, or is this a buying opportunity? Let’s find out.

Let’s start by reviewing all that this company does. While NASDAQ is best known for its namesake stock exchange, over the past three decades it has branched into nearly all aspects of the global financial market. At present, NASDAQ, Inc. has four business segments: Trade, Tech, Intel and List. NASDAQ, Inc.’s Trade business is its largest; the company’s network of exchanges spans 26 markets, three clearinghouses and five central depositories. In the United States, the NASDAQ, Inc. stock market is the single largest liquidity pool for U.S. stocks.

The company’s three other businesses complement its core market services segment. NASDAQ, Inc. offers sophisticated technology solutions for brokers and others that use its exchange. NASDAQ’s technology supports 10% of all securities transactions around the world. The company’s Intel segment offers market data services, including real-time data feeds, online reports and tools. And NASDAQ’s List segment exists to support the 3,700 companies listed on its U.S., Nordic and Baltic exchanges.

Now, the reason that NDAQ fell today is that it had a minor sales miss. However, its report was otherwise pretty strong. Here are the highlights…

NASDAQ’s Q3 earnings fell 5.1% year-on-year to $131 million, or $0.77 per share, on higher acquisition costs. This was to be expected, as NASDAQ acquired four companies earlier this year, the largest being the $1.1 billion buyout of International Securities Exchange (ISE).

Excluding these one-time costs, adjusted earnings rose 2% to $154 million, or $0.91 per share. This beat analysts’ EPS estimates by a penny, or by 1.1%. Meanwhile, net revenues rose 11% to a record $585 million; this missed the $586.2 million consensus sales estimate by a hair.

Despite the minor sales miss, NASDAQ remains a buy. This year so far, the company has returned 54% of its adjusted earnings to shareholders in the form of dividends and stock buybacks. Speaking of which, NASDAQ also declared a quarterly dividend of $0.32 per share. Shareholders of record on December 16 will be paid on December 30. At current prices, NDAQ has a 1.9% annual dividend yield.

NOC earns a B-rating in both Portfolio Grader and Dividend Grader, making it a rare “double-whammy” stock. So, I consider today’s pullback a solid buying opportunity.


Louis Navellier

Louis Navellier

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