William Blair On MarketAxess: 'Valuation Keeps Us On The Sidelines'

William Blair analysts Christopher Shutler and Andrew Nicholas initiated coverage on MarketAxess Holdings Inc. MKTX with a Market Perform rating. However, the analysts believe valuation kept them on the sidelines pointing out that the stock delivered 63 percent appreciation last year and expects the stock to take a breather.

The brokerage said in a note to clients, "Based on our DCF analysis, we believe the valuation already embeds significant market share gains in U.S. high grade and high yield, along with a notable increase in commissions from other products. Near-term business momentum is strong, and we acknowledge the stock's defensive positioning, but would prefer to be more aggressive when expectations are not quite so high."

The analysts expect the company to gain from Network Effect as the Market Share Leader. They also expect that as the leading electronic platform in the American credit space, the company is well placed to add to its market share by leveraging its network of more than 1,000 active investment firms and over 100 broker-dealers.

William Blair believes MarketAxess business model is powerful when it to comes to the network effect. That is primarily because of the growth in the investor and dealer base, the number of trading inquiries and price responses increase, enhanced pricing, and more trades get executed, further encouraging activity on the platform.

The brokerage also expects support from some of the biggest institutional investors in the world to continue to cement MarketAxess's leadership positioning. The two analysts also see secular trends favoring continued growth and open trading as a differentiator.