Jefferies: MarketAxess Has Balanced Risk-Reward, Potential For Market Share Gains

Shares of fixed-income trading platforms operator MarketAxess Holdings Inc. MKTX have lost around 8 percent since the company's second-quarter report July 25. 

The Analyst

Jefferies' Daniel Fannon initiated coverage of MarketAxess Holdings with a Hold rating and 12-month price target of $219.

The Thesis

The company represents one of the leading growth stories in the financial services sector, but its risk-reward is fairly balanced due to accelerating competition and a valuation slightly above the historical average, Fannon said in the Wednesday initiation note. (See the analyst's track record here.) 

MarketAxess currently a 17.4-percent market share in investment-grade bonds and 7.7 percent in high-yield bonds, the analyst said.

The market share growth has been consistent, and Fannon said he sees the potential for more.

"The largest growth opportunity for MarketAxess represents greater usage from its existing customer base," the analyst said.

Regulatory requirements in the bond market are a potential growth catalyst, as there is a need for greater transparency, Fannon said. 

MarketAxess shares at a 2018 forward price-to-earnings ratio of 45.2, just above its three-year historical average of 42. The analyst said he doesn't expect the multiple to expand further, as competitors like ICE and Tradeweb are becoming more active.

The Price Action

MarketAxess shares were down 0.12 percent at $193.53 at the close Wednesday. 

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