Nasdaq Lags Industry, Trades at a Discount: Time to Buy the Dip?

Core Viewpoint - Nasdaq (NDAQ) shares are currently trading at a discount compared to the Zacks Securities and Exchanges industry, with a price-to-earnings ratio of 23.4X, slightly above the industry average of 24.12X [1] Financial Performance - Nasdaq has a market capitalization of $43.8 billion and has effectively maximized opportunities as a technology and analytics provider while growing its core marketplace business [1] - Year-to-date, Nasdaq stock has decreased by 1.5%, underperforming both the industry and sector but outperforming the Zacks S&P 500 composite [3] - The average price target from 18 analysts for Nasdaq shares is $90.56, indicating a potential upside of 18.9% from the last closing price [6] Growth Projections - The Zacks Consensus Estimate for 2025 earnings is $3.18 per share, reflecting a year-over-year increase of 12.8% on revenues of $5 billion, which is an 8.3% increase [7] - For 2026, the earnings estimate is $3.61 per share, indicating a 13.6% year-over-year increase on revenues of $5.4 billion, a 7.8% increase [7] - Nasdaq's expected long-term earnings growth rate is 12.3%, surpassing the industry's growth rate of 9% [7] Return on Capital - Nasdaq's return on equity for the trailing 12 months is 14.8%, which is higher than the industry average of 13.5% [8] - The return on invested capital (ROIC) has remained around 10% in recent years, with a trailing 12-month ROIC of 6.5%, exceeding the industry average of 5% [9] Strategic Initiatives - Nasdaq is focusing on generating more revenue from high-growth Market Technology and Investment Intelligence segments, along with increased R&D spending on higher-growth products [10] - The company anticipates strong growth from its index and analytics businesses, with medium-term revenue growth estimates of 5-8% for Capital Access Platforms and 10-14% for Financial Technology [11] - Nasdaq's strategic acquisitions have enhanced its access to the Canadian equities market and improved its technology offerings [12] Expense Management - Nasdaq has been experiencing higher expenses, leading to net margin contraction over time, with expected non-GAAP operating expense growth of 5-8% in the medium term [13] - A change in corporate structure is projected to incur pretax charges of $115-$145 million, with about 40% being non-cash charges, but the company expects annual run rate operating efficiencies and revenue synergies of at least $30 million by 2025 [14] Dividend Policy - Nasdaq has consistently increased its dividend annually and aims for a dividend payout ratio of 35-38% by 2027, with free cash flow conversion remaining above 100% in recent quarters [16]