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A compelling and diversified product portfolio has helped drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions, and the increased adoption of a greater number of crypto assets are expected to benefit industry players, such as CME Group (CME - Free Report), Intercontinental Exchange (ICE - Free Report), Cboe Global Markets (CBOE - Free Report), Coinbase Global Inc. (COIN - Free Report), and MarketAxess Holdings Inc. (MKTX - Free Report).

Increased focus on accelerating their non-trading revenue base, which includes market technology, listing, and information revenues, may infuse dynamism in the business profile of these industry players. However, alterations in investment patterns and priorities, as well as compliance with regulations, could pose some challenges.

About the Industry

The Zacks Securities and Exchanges industry comprises companies that operate electronic marketplaces, which facilitate the buying and selling of stocks, stock options, and bonds or commodity contracts. They facilitate trading across a diverse range of products in multiple asset classes and geographies. They generate revenues from fees received from listed companies on their exchanges.

They also provide a range of data and listing services to global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, investments, risk management, desktops, and connectivity solutions, as well as corporate and ETF listing services. The industry is witnessing increased adoption of crypto assets. Yet, industry players have to comply with a number of regulations, which pose challenges.

3 Trends Shaping the Future of the Securities and Exchanges Industry

Volatility Fuels Trading Volume: Players in the industry are largely dependent on product and service portfolios for revenues. Major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services, plus trading and clearing systems services. Other revenue sources include data products and financial indexes, along with information and public company services.

The maximization of transaction and clearing fees and the lowering of transaction-based expenses drive profits. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players). Recently, the SEC approved U.S. spot Bitcoin ETFs. With the increased adoption of crypto assets, exchanges are poised to witness heightened trading volumes.

Mergers and Acquisitions: The industry continues to witness mergers and acquisitions, with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, offer new products or services, and enhance the value of their platforms and existing trade-related operations.

Additionally, strategic buyouts often lead to a diversified product portfolio (the primary growth catalyst) and help industry participants maintain their domestic market share, as well as fortify their global footprint.

Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services will help all exchanges stay afloat amid changing industry dynamics.

In recent years, many players have launched a number of innovative technologies that rely on machine learning, automation, and algorithms designed to improve trading decisions while reducing trading inefficiencies, cyber threats, and human errors, thus accelerating trading frequency.

Players are also investing in automating non-trading operations that play an important part in revenue generation for the companies. Nonetheless, players still have to comply with various regulations that are being implemented.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #13, which places it in the top 5% of the 253 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimates have been revised 8.8% upward by analysts for the current year.  

Before we present a few securities and exchanges stocks worth considering for your portfolio, let’s take a look at the industry’s recent performance and valuation picture.

The Industry Outperforms Sector, and Underperforms S&P 500

The Zacks Securities and Exchanges industry has outperformed the broader Zacks Finance sector, but underperformed the Zacks S&P 500 composite over the past year. The industry has increased 17.7% compared with the broader sector’s increase of 9.7%. The Zacks S&P 500 composite has risen 20.9% in the mentioned time frame.

One-Year Price Performance

The Industry's Current Valuation

On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing finance stocks, the industry has recently been trading at 3.41X compared with the S&P 500’s 6.09X and the sector’s 3.35X.

Over the last five years, the industry has traded as high as 4.77X, as low as 2.38X, and at the median of 3.26X, as the chart below shows.

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

5 Stocks to Watch From The Securities and Exchanges Industry

We will now present one Zacks Rank #1 (Strong Buy) stock, two Zacks Rank #2 (Buy) stocks, and two Zacks Rank #3 (Hold) stock from the Securities and Exchanges industry.

CME Group

Headquartered in Chicago, IL, CME Group boasts the largest futures exchange in the world in terms of trading volume, as well as notional value traded. Efforts to expand futures in emerging markets, non-transaction-related opportunities, OTC offerings, cross-selling through alliances, strong global presence, and solid liquidity should all drive growth for this Zacks Rank #3 (Hold) company.

The Zacks Consensus Estimate for the company’s 2024 EPS indicates a year-over-year increase of 3.4% from the 2023 estimated figure. It came up with a four-quarter average earnings surprise of 2.73%. The expected long-term earnings growth rate is pegged at 10.8%. The consensus estimate for the company’s 2024 earnings has moved 3 cents north in the past seven days.

Price and Consensus: CME

Coinbase Global

Wilmington, DE-based Coinbase, carrying a Zacks Rank #2 (Buy), provides financial infrastructure and technology for the crypto economy in the United States and internationally.

Coinbase Global is likely to gain from increased adoption of a greater number of crypto assets, higher volatility, and a rise in interest across the entire crypto economy. An increase in both the average crypto asset prices and total crypto spot market volumes will additionally drive the overall trading volume of COIN.

The Zacks Consensus Estimate for the company’s 2024 EPS indicates a rise of 34.7% from the year-ago estimated figure. It came up with a four-quarter average earnings surprise of 62.95%. The consensus estimate for the company’s 2024 earnings has moved 10% north in the past seven days.

Price and Consensus: COIN

Cboe Global Markets

Based in Chicago, IL, Cboe Global, currently carrying a Zacks Rank #1 (Strong Buy), is one of the largest stock exchange operators by volume in the United States and globally for ETP trading. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach, and a diversifying business mix with recurring revenues and technology.

The Zacks Consensus Estimate for the company’s 2024 EPS indicates a year-over-year increase of 5.9% from the 2023 estimated figure. It came up with a four-quarter average earnings surprise of 4.07%. The expected long-term earnings growth rate is pegged at 10.2%. The consensus estimate for the company’s 2024 earnings has moved 0.6% north in the past seven days.

Price and Consensus: CBOE

MarketAxess

Based in New York, MarketAxess is a leading multi-dealer trading platform. Growing commissions, solid credit trading volume, the extensive reach of the Open Trading platform, acquisitions, and a notable financial position continue to drive growth for this company. The stock currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for the company’s 2024 EPS indicates a rise of 13.3% from the year-ago estimated figure. The consensus estimate has moved up 1.6% in the past seven days. It came up with a four-quarter average earnings surprise of 2.03%. The expected long-term earnings growth rate is pegged at 7.7%.

Price and Consensus: MKTX   

Intercontinental Exchange

Atlanta, GA-based Intercontinental Exchange is a leading global operator of regulated exchanges, clearing houses, and listings venues, and it is a provider of data services for commodity, financial, fixed income, and equity markets.

This Zacks Rank #3 (Hold) company is poised to grow on an expansive product and service portfolio and strength in global data services. Accelerated digitization taking place in the U.S. residential mortgage industry should favor mortgage technology. The company boasts the largest mortgage network.

The Zacks Consensus Estimate for the company’s 2024 EPS indicates a year-over-year rise of 3.8%. It came up with a four-quarter average earnings surprise of 2.15%. The expected long-term earnings growth rate is pegged at 7.8%.

Price and Consensus: ICE

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