On Monday, UBS updated its outlook on Nasdaq OMX Group Inc. (NASDAQ: NDAQ) shares, increasing the firm's price target from $60.00 to $68.00, while maintaining a Neutral rating. The adjustment follows the first quarter results of 2024, which prompted a review of the company's medium-term growth potential.
According to UBS, Nasdaq's accelerating growth in organic solutions is expected to bring its valuation more in line with its information services peers. However, the firm also noted a reduction in earnings per share (EPS) estimates by 2-3%, which remains significantly lower than the consensus on the Street. This tempered view reflects several factors impacting Nasdaq's business trajectory.
The firm anticipates a near-term slowdown in organic growth due to tougher comparisons in the index segment and continued subdued performance in several of Nasdaq's legacy solutions businesses. Furthermore, UBS expects the high-margin trading businesses to experience a downturn over the year.
Despite the positive performance of Adenza, Nasdaq's financial software and risk management company, concerns remain. UBS highlighted that with leverage still above 4% and private equity lock-ups expiring in June, the contribution from Adenza may not be sufficient to counterbalance other headwinds. Additionally, the recent decline in peer group multiples poses challenges to Nasdaq's valuation case.
In summary, while UBS acknowledges the potential for Nasdaq's organic solutions growth to enhance its relative valuation, the firm remains cautious due to lower EPS estimates, anticipated growth deceleration, and broader market conditions affecting trading businesses and valuation multiples.
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