Why Is MarketAxess (MKTX) Down 6.9% Since Last Earnings Report?

A month has gone by since the last earnings report for MarketAxess (MKTX). Shares have lost about 6.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MarketAxess due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

MarketAxess Q4 Earnings & Revenues Beat Estimates

MarketAxess Holdings’ earnings per share of $1.32 beat the Zacks Consensus Estimate by 1.5% and grew 9.1% year over year.

Operational Update

Revenues of $129.8 million beat the Zacks Consensus Estimate by 2.2% and were up 15.9% year over year. Commission revenues increased 15.4% year over year to $117.1 million.

All other revenues, which comprise information services, post-trade services and other revenues, increased 15.5% to $12.7 million.

Total trading volumes increased 14.4% year over year to $489.5 billion.

Total expenses at MarketAxess increased 17.9% from the prior-year quarter to $68.9 million. This rise was due to higher employee compensation and benefit cost, headcount, technology and communication costs, professional and consulting fees, general and administrative costs, and clearing costs.

The effective tax rate was 18.9% in the fourth quarter, up from 18.3% in the year-ago quarter.

Operating income of $60.9 million increased 12.8% year over year.

Financial Update

Total assets were $954.9 million as of Dec 31, 2019, up 37.3% year over year.

Total cash, cash equivalents and investments were $500.6 million, up 2.8% from year-end 2018 level.

During the quarter, the company generated free cash flow of $72.6 million, up 18.3% year over year.

Share Repurchase and Dividend Update

MarketAxess bought back shares worth $5.8 million in the fourth quarter.

The company's board of directors declared a quarterly cash dividend of 60 cents per share, which represented an 18% increase. The same will be paid out on Feb 26, 2020 to stockholders of record as of the close of business on Feb 12, 2020.

2020 Guidance

Expenses are expected in the range of $297 million to $314 million and include a full year of LiquidityEdge expenses estimated between $18 million and $22 million. The company anticipates overall effective tax rate between 20% and 22%

The company provided capital expenditure guidance range between $44 million and $49 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, MarketAxess has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, MarketAxess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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