On Nov 26, we issued an updated research report on Nasdaq OMX Group Inc. (NDAQ – Analyst Report), assessing its opportunities and challenges in the foreseeable future.

Nasdaq is focused on growth from acquisitions and organic initiatives that enable entry and cross-selling opportunities into new markets on a low cost and highly flexible platform. Alongside, an improving leverage and strong cash flow, which spiked 20.8% year over year in the first nine months of 2014, also support growth initiatives and accelerated capital deployment, thereby boosting investor confidence. From Jan 2010 to Oct 2014, Nasdaq returned $2.74 billion through share repurchases.

Moreover, Nasdaq’s initial public offering (IPO) pipeline (up 72% in the first nine months of 2014) remains strongest industry-wide. A robust pipeline of accounts from eSpeed, new products from Thomson Reuters in the coming quarters and potential market opportunities are further projected to drive growth in the Technology Solutions’ portfolio.

The company’s operating margin has also been witnessing improvement for the past couple of quarters, given disciplined expense management. However, expenses are likely to grow about 7–9% in 2014. Meanwhile, top line faces challenges from a volatile exchange rate, and lower volumes in derivative and fixed income. Notably, equity options are generating sluggish volumes in both the U.S. (down 1.9% year over year until Oct 2014) and European (down 11.1%) markets. Even clearing volumes declined 7.7% in the first nine months of 2014.

Headwinds related to competition, currency and pricing also mar the desired upside. The limitations indicate Nasdaq’sneed to respond to changing industry dynamics.

Earnings Review

This Zacks Rank #3 (Hold) stock kept its earnings streak alive in the trailing four quarters with an average beat of 2.9%. The company’s third-quarter 2014 earnings of 72 cents a share also outshone the Zacks Consensus Estimate by 2.9% and the year-ago quarter figure by 9.1%.