Intrinsic value of MarketAxess Holdings - MKTX

Previous Close

$210.22

  Intrinsic Value

$37.02

stock screener

  Rating & Target

str. sell

-82%

Previous close

$210.22

 
Intrinsic value

$37.02

 
Up/down potential

-82%

 
Rating

str. sell

Our model is not good at valuating stocks of financial companies, such as MKTX.

We calculate the intrinsic value of MKTX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 7.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  427
  458
  490
  523
  558
  594
  632
  671
  712
  754
  798
  845
  893
  943
  996
  1,051
  1,108
  1,168
  1,231
  1,297
  1,365
  1,437
  1,513
  1,592
  1,674
  1,761
  1,852
  1,947
  2,047
  2,152
Variable operating expenses, $m
  206
  221
  236
  252
  269
  286
  304
  323
  343
  363
  383
  405
  428
  452
  477
  504
  531
  560
  590
  622
  655
  689
  725
  763
  803
  844
  888
  934
  982
  1,032
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  206
  221
  236
  252
  269
  286
  304
  323
  343
  363
  383
  405
  428
  452
  477
  504
  531
  560
  590
  622
  655
  689
  725
  763
  803
  844
  888
  934
  982
  1,032
Operating income, $m
  221
  237
  254
  271
  289
  308
  327
  348
  369
  391
  416
  440
  465
  491
  518
  547
  577
  608
  641
  675
  711
  748
  787
  829
  872
  917
  964
  1,014
  1,066
  1,120
EBITDA, $m
  283
  304
  325
  347
  370
  394
  419
  445
  472
  501
  530
  561
  593
  626
  661
  697
  735
  775
  817
  861
  906
  954
  1,004
  1,056
  1,111
  1,169
  1,229
  1,293
  1,359
  1,428
Interest expense (income), $m
  0
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
Earnings before tax, $m
  207
  224
  241
  258
  276
  295
  315
  335
  356
  378
  403
  427
  452
  478
  505
  534
  564
  595
  628
  662
  698
  735
  774
  816
  859
  904
  951
  1,001
  1,053
  1,107
Tax expense, $m
  56
  60
  65
  70
  75
  80
  85
  90
  96
  102
  109
  115
  122
  129
  136
  144
  152
  161
  169
  179
  188
  199
  209
  220
  232
  244
  257
  270
  284
  299
Net income, $m
  151
  163
  176
  188
  202
  215
  230
  244
  260
  276
  294
  312
  330
  349
  369
  390
  412
  434
  458
  483
  509
  537
  565
  595
  627
  660
  694
  731
  768
  808

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Adjusted assets (=assets-cash), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Revenue / Adjusted assets
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Average production assets, $m
  611
  655
  701
  749
  799
  851
  905
  961
  1,019
  1,080
  1,143
  1,210
  1,279
  1,351
  1,426
  1,504
  1,587
  1,673
  1,763
  1,857
  1,955
  2,058
  2,166
  2,279
  2,398
  2,522
  2,652
  2,789
  2,932
  3,082
Working capital, $m
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -19
Total debt, $m
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
  240
Total liabilities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total equity, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total liabilities and equity, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  151
  163
  176
  188
  202
  215
  230
  244
  260
  276
  294
  312
  330
  349
  369
  390
  412
  434
  458
  483
  509
  537
  565
  595
  627
  660
  694
  731
  768
  808
Depreciation, amort., depletion, $m
  63
  67
  72
  76
  81
  86
  92
  97
  103
  109
  114
  121
  128
  135
  143
  150
  159
  167
  176
  186
  196
  206
  217
  228
  240
  252
  265
  279
  293
  308
Funds from operations, $m
  214
  230
  247
  265
  283
  302
  321
  342
  363
  386
  408
  432
  458
  484
  511
  540
  570
  602
  635
  669
  705
  743
  782
  823
  867
  912
  960
  1,009
  1,062
  1,116
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  214
  231
  248
  265
  283
  302
  322
  342
  364
  386
  409
  433
  458
  484
  512
  541
  571
  602
  635
  669
  705
  743
  783
  824
  867
  913
  960
  1,010
  1,063
  1,117
Maintenance CAPEX, $m
  -57
  -61
  -66
  -70
  -75
  -80
  -85
  -90
  -96
  -102
  -108
  -114
  -121
  -128
  -135
  -143
  -150
  -159
  -167
  -176
  -186
  -196
  -206
  -217
  -228
  -240
  -252
  -265
  -279
  -293
New CAPEX, $m
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -119
  -124
  -130
  -136
  -143
  -150
Cash from investing activities, $m
  -99
  -105
  -112
  -118
  -125
  -132
  -139
  -146
  -154
  -163
  -171
  -180
  -190
  -200
  -210
  -222
  -232
  -245
  -257
  -270
  -284
  -299
  -314
  -330
  -347
  -364
  -382
  -401
  -422
  -443
Free cash flow, $m
  115
  125
  136
  147
  159
  170
  183
  196
  209
  223
  237
  252
  268
  285
  302
  320
  338
  358
  378
  399
  421
  445
  469
  494
  521
  549
  578
  609
  641
  674
Issuance/(repayment) of debt, $m
  -10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total cash flow (excl. dividends), $m
  105
  125
  136
  147
  159
  170
  183
  196
  209
  223
  237
  252
  268
  285
  302
  320
  338
  358
  378
  399
  421
  445
  469
  494
  521
  549
  578
  609
  641
  674
Retained Cash Flow (-), $m
  -10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Prev. year cash balance distribution, $m
  10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
  67
  70
  74
Cash available for distribution, $m
  105
  125
  136
  147
  159
  170
  183
  196
  209
  223
  237
  252
  268
  285
  302
  320
  338
  358
  378
  399
  421
  445
  469
  494
  521
  549
  578
  609
  641
  674
Discount rate, %
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
  98
  108
  107
  106
  103
  99
  94
  89
  82
  75
  68
  60
  53
  46
  39
  32
  27
  21
  17
  13
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

MarketAxess Holdings Inc. operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments using its trading technology. Institutional investor and broker-dealer firms are users of trading platform, accessing global liquidity in the United States corporate bonds, emerging markets and high-yield bonds, European bonds, the United States agency bonds, municipal bonds, credit default swaps and other fixed-income securities. Through Open Trading protocols, it executes trades in certain bonds between and among institutional investor and broker-dealer clients in a trading environment on a matched principal basis. It offers trading-related products and services, including market data to assist clients with trading decisions; connectivity solutions that facilitate straight-through processing; technology services to optimize trading environments, and execution services for exchange-traded fund managers.

FINANCIAL RATIOS  of  MarketAxess Holdings (MKTX)

Valuation Ratios
P/E Ratio 62.6
Price to Sales 21.3
Price to Book 16.9
Price to Tangible Book
Price to Cash Flow 98.6
Price to Free Cash Flow 129.4
Growth Rates
Sales Growth Rate 22.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.7%
Cap. Spend. - 3 Yr. Gr. Rate -3.7%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 26.1%
Ret/ On Assets - 3 Yr. Avg. 23.3%
Return On Total Capital 29.3%
Ret/ On T. Cap. - 3 Yr. Avg. 26.4%
Return On Equity 29.3%
Return On Equity - 3 Yr. Avg. 26.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 90.5%
Gross Margin - 3 Yr. Avg. 89.6%
EBITDA Margin 56.8%
EBITDA Margin - 3 Yr. Avg. 54.5%
Operating Margin 51.9%
Oper. Margin - 3 Yr. Avg. 48.7%
Pre-Tax Margin 51.9%
Pre-Tax Margin - 3 Yr. Avg. 48.7%
Net Profit Margin 34.1%
Net Profit Margin - 3 Yr. Avg. 31.4%
Effective Tax Rate 34.4%
Eff/ Tax Rate - 3 Yr. Avg. 35.5%
Payout Ratio 30.2%

MKTX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MKTX stock intrinsic value calculation we used $397 million for the last fiscal year's total revenue generated by MarketAxess Holdings. The default revenue input number comes from 2017 income statement of MarketAxess Holdings. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MKTX stock valuation model: a) initial revenue growth rate of 7.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.4%, whose default value for MKTX is calculated based on our internal credit rating of MarketAxess Holdings, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of MarketAxess Holdings.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MKTX stock the variable cost ratio is equal to 48.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MKTX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for MarketAxess Holdings.

Corporate tax rate of 27% is the nominal tax rate for MarketAxess Holdings. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MKTX stock is equal to 3.6%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MKTX are equal to 143.2%.

Life of production assets of 10 years is the average useful life of capital assets used in MarketAxess Holdings operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MKTX is equal to -0.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $0 million for MarketAxess Holdings - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 37 million for MarketAxess Holdings is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of MarketAxess Holdings at the current share price and the inputted number of shares is $7.8 billion.

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COMPANY NEWS

▶ MarketAxess CEO Rick McVey on electronic bond trading   [Jun-07-18 09:59AM  CNBC Videos]
▶ MarketAxess: 1Q Earnings Snapshot   [06:37AM  Associated Press]
▶ New Strong Sell Stocks for March 8th   [Mar-08-18 08:54AM  Zacks]
▶ MarketAxess Holdings Inc. Boosts Dividend by 27%   [Feb-04-18 03:21PM  Motley Fool]
▶ MarketAxess posts 4Q profit   [06:46AM  Associated Press]
▶ Is MarketAxess Holdings Inc (NASDAQ:MKTX) Undervalued?   [Jan-24-18 05:43AM  Simply Wall St.]
▶ MarketAxess Sees RS Rating Rise To 73   [Jan-05-18 03:00AM  Investor's Business Daily]
▶ Does MarketAxess Holdings Incs (MKTX) PE Ratio Warrant A Sell?   [Nov-24-17 08:05PM  Simply Wall St.]
▶ How To Trade Stocks: Breakaway Gaps And The Art Of The Breakout   [Nov-06-17 07:00PM  Investor's Business Daily]
▶ MarketAxess posts 3Q profit   [06:39AM  Associated Press]
▶ [$$] ICE ramps up move on corporate bond market   [Oct-24-17 06:48PM  Financial Times]
▶ Trax MiFID II ARM Approved by Financial Conduct Authority   [Sep-29-17 07:55AM  GlobeNewswire]
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