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KBW Defends MarketAxess After Selloff, Says Core Growth Means Stock Will Outperform

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October 22, 2015 9:10 am
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  • The share price of MarketAxess Holdings Inc. (NASDAQ: MKTX) has declined 13.33 percent in the past three months, from a high of $100.22 on July 21.
  • Kyle K. Voigt of Keefe, Bruyette & Woods has upgraded the rating on the company from Market Perform to Outperform, while lowering the price target from $107 to $105.
  • Voigt believes that the recent sell-off in the stock was overdone, given that the company’s underlying volume growth trends remain intact.

Analyst Kyle Voigt believes that at the current valuation, the stock offers “an attractive entry point to own a company with a very strong balance sheet, high quality management team, and a long runway left for growth.”

MarketAxess Holdings’ market share gain re-accelerated in 2015, driven by open trading protocols, which resulted in ADV of $361 million for 3Q15, more than twice the amount seen a year ago.

However, Voigt believes that it is still early stages, since this generates only about 10 percent of the company’s total volume. Although “management believes that the addressable market for electronic trading in high grade corporate bonds could be 60-70 percent of today's total volume and the addressable market for high yield could be 40-50 percent of total volume.”

According to the Keefe, Bruyette & Woods report, the $0.02 EPS miss in Q3 was driven by a marginal decline in commission revenues and higher than anticipated expenses. The lower commission revenues was largely due to a decline in Other Credit revenue per million.

U.S. corporate debt issuance has been at record highs year-to-date. “If rate hikes in the U.S. begin to slow new debt issuance, we believe this could bode well for secondary market trading volumes as investors must rely less on the new issuance calendar,” the report stated.

In addition, MarketAxess Holdings’ market share gains usually accelerate during times when there is weaker new issuance. Therefore, Voigt believes that higher rates in the US with lower issuance could be a tailwind for stronger market share gains for the company.

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