RBC Capital analyst Ashish Sabadra has initiated coverage on Nasdaq Inc (NDAQ) with an ‘Outperform’ rating and a price target of $88. This bullish outlook is driven by the analyst’s belief in Nasdaq’s strong growth prospects and its increasing reliance on recurring revenue following the acquisition of Adenza.
Sabadra highlights that Nasdaq’s peer group is currently trading at an average of 21 times fiscal 2026 earnings per share (EPS). However, he argues that Nasdaq’s unique position, driven by several secular tailwinds in its business, its improved recurring revenue mix, and its robust earnings growth, warrants a higher valuation.
Nasdaq’s Solutions segment, targeting a significant addressable market of $31 billion Serviceable Available Market (SAM) and $79 billion Total Addressable Market (TAM), is currently only capturing approximately 8.5% of SAM. The analyst expects this segment to grow at an accelerated pace of 8%+, fueled by secular trends like Cloud and Digital Transformation and the adoption of GenAI.
Sabadra anticipates that Nasdaq’s leading solutions will outperform the market, delivering 8%-11% Solutions revenue growth over the mid-term. He projects that Solutions revenues will constitute over 80% of total revenues by the mid-term, contributing to an overall revenue growth of 6% to 9%.
The analyst also highlights the significant cross-sell and up-sell opportunities presented by AxiomSL and Calypso, stemming from their ‘land and expand’ strategy. This strategy, driven by factors like increased regulations, geographic expansion, product penetration, and product upgrades, is projected to deliver high-single-digit to double-digit revenue growth over the mid-term for Regulatory and Capital Market Technology.
Sabadra further expects accelerated growth in Verafin, driven by new client wins and expansion into Tier 1 and 2 banks. This is anticipated to result in robust mid-20% growth in Financial Crime Management.
Overall, the analyst projects Nasdaq to deliver a potential upside to mid-term revenue growth of 10%-14% in Financial Technology. This growth is expected to be resilient even in a potential economic downturn.
Sabadra points out that the shift from active to passive investing, with a focus on U.S. growth stocks, is likely to drive an upside to the Index’s mid-single-digit to high-single-digit mid-term revenue growth. The anticipated capital market recovery in fiscal 2025-2026 is expected to benefit Data and Listing Services and IR solutions within Workflow & Insights.
The analyst believes that Nasdaq’s portfolio rationalization will accelerate the growth of workflow and insights, from high-single-digit to low double-digit, over the mid-term.
According to Sabadra, the cost synergies resulting from the Adenza acquisition should lead to expense growth below the mid-term target of a 5% to 8% increase annually. This, in turn, is expected to drive robust margin expansion.
Finally, Sabadra anticipates robust free cash flow, which should help de-lever Nasdaq’s balance sheet to below 3.3 times by the end of fiscal 2025.
For the third quarter, Sabadra projects revenue of $1.16 billion and EPS of 68 cents.
Nasdaq stock closed at $72.76 on Friday, up 0.28%.
