KBW Downgrades Nasdaq, Sees Slower Revenue In eSpeed And Corporate Solutions

In a report published Wednesday, Keefe, Bruyette & Woods analyst Kyle K. Voigt downgraded the rating on

from Outperform to Market Perform, while reducing the price target from $57 to $55. NASDAQ OMX shares had been upgraded on expectations of multiples expansion after the company reported consistent cash generation, despite a tough operating environment. "We think this multiple expansion has mostly played out. While we are still comfortable applying a 15X earnings multiple on NDAQ's earnings stream, we lower our forward EPS estimates and price target given the elusive top-line growth in 2015 (partially from FX headwinds)," analyst Kyle Voigt mentioned. The EPS estimates for 2015 and 2016 have been reduced from $3.24 to $3.17 and from $3.69 to $3.50, respectively. NASDAQ OMX could witness multiples expansion if some of its businesses, including the Corporate Solutions business and the eSpeed business, start contributing more. The company's index business is the "crown jewel," but its contribution to the overall group remains limited. In the report Keefe, Bruyette & Woods noted, "While a majority of NDAQ's earnings has migrated away from transaction-based businesses, a large portion of NDAQ's earnings are still generated from selling market data and access services primarily to equities and options market participants in the U.S. and Europe." "While we like the consistency of this earnings stream specifically and this was part of our prior call for multiple expansion, we think that thesis has mostly played out, and we struggle to apply a higher earnings multiple to that business from here," Voigt added.