Oppenheimer says buy these exchange stocks in 2024

Nasdaq (NDAQ) is Oppenheimer’s top 2024 idea in the exchange space because of accelerating organic growth, deleveraging, and attractive valuation. The firm believes the improving macro backdrop will drive higher spending on anti-financial crime, higher equity markets, and improving IPO market. It will benefit Nasdaq’s three key segments including financial technology, index, and listing, Oppenheimer argues. The firm also has Outperform ratings on CBOE Global Markets (CBOE) and CME Group (CME).

TOP PICK: Oppenheimer has named Nasdaq as its top 2024 idea in the exchange space because of accelerating organic growth, deleveraging, and attractive valuation. The firm believes the improving macro backdrop will drive higher spending on anti-financial crime, higher equity markets, and improving IPO market. It will benefit Nasdaq’ three key segments, namely financial technology, index, and listing, which will help accelerate organic growth to 7%-10% range in 2024. Additionally, given the stable cash flow generated from the Solutions business which accounts for 77% of total revenue, Oppenheimer thinks Nasdaq can delever the balance sheet to 4-times leverage by mid-2025 and 3.3-times by the end of 2026. Moreover, Nasdaq is poised to rebound from the weakness last year due to weak IPO and Adenza acquisition, it argues.

Overall, the firm believes sentiment on the stock has improved recently and likes the setup going into 2024 given the increasing demand for anti-fraud solutions, improving outlook of the IPO market, healthy equity market, and attractive valuation. In Oppenheimer’s view, Outperform-rated Nasdaq presents an attractive investment opportunity.

OTHER OUTPERFORMED-RATED STOCKS: Oppenheimer has Outperform ratings on two other stocks in the space, namely CBOE Global Markets and CME Group. The firm has increased its Q4 2023 adjusted EPS for CBOE by 2% to $2.01 from $1.98, driven by 24% and 33% year-over-year growth in index options and VIX options ADV, respectively. It maintains its full year 2024 and full year 2025 estimates at $8.22 and $8.72, along with its price target on the stock at $201 based off a 23-times multiple. With further penetration in 0DTE and monetization of CBOE Digital with new product launches, there could be room for further earnings growth, Oppenheimer argues. Also, other initiatives such as international expansion and organic growth in DnA provide additional optionality for the stock. Although the stock outperformed S&P 500 in each of the last 3 years, it is still trading at a 112% relative multiple, below its long-term average of 130%, the firm adds.

Meanwhile, Oppenheimer also raised its Q4 2023 adjusted EPS for CME by 9% to $2.23 from $2.04, primarily driven by higher-than-expected interest rates, energy, and commodities trading volumes. Additionally, it raised its full year 2025 estimate to $9.30 from $9.25, while maintaining its price target on the shares at $233. While the rate cut backdrop had negatively impacted the stock’s sentiment, the firm expects further upside to come from increased hedging activities surrounding Treasury issuance and volatility in interest rates. Energy trading has also shown signs of resurgence. Oppenheimer believes the stock is especially attractive for yield investors.

ON THE SIDELINES: The firm keeps a Perform rating on Intercontinental Exchange (ICE) shares, while increasing its Q4 adjusted EPS forecast to $1.32 from $1.31, primarily driven by higher-than-expected energy and Ags & Metals trading volumes. Going into 2024, Oppenheimer believes the focus will be on the recovery of mortgage market, realization of revenue and cost synergies from BKI, and the potential upside from energy trading. Based on forecasts from the Mortgage Bankers Association, origination volume is expected to be down 17% and 13% year-over-year in 2024 and 2025, respectively.