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Goldman's analysts added Nasdaq to their "conviction buy" list, with a $27 target price offering more than 25% upside from Wednesday's close, though the shares were up sharply early Thursday.
"The upside is driven by a 20%-plus cash flow yield from operations and the possibility for an accretive share repurchase announcement in the second half of 2011," Goldman's analysts write.
Goldman's analysts note they "have long been attracted to the Nasdaq story," arguing it has a "reasonable multiple for a very competitive market."
They are also impressed with Nadaq's management, arguing they post strong margins--46% in 2010, for example--"wringing every bit of profitability from the markets."
Another plus is that only 35% of Nasdaq's revenues come from transactions, "thus the relative stability of its earnings/cash flow are attractive in a volatile market." They also we expect a share repurchase authorization in the second half of this year which they expect will be well received by investors.
Sandler O'Neill analyst Richard Repetto is also bullish on Nasdaq, assigning it a "buy" rating and a $33 price target.
"Valuation remains compelling on both an absolute and relative basis," Repetto wrote in an Aug. 9 report. He argues Nasdaq's valuation is an "outlier" compared to competitors, trading at a multiple that is more than five points lower.
This discount is "unjustified," Repetto argues, since Nasdaq has reported two record quarters in a row in terms of earnings.
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Written by Dan Freed in New York.