Tradeweb Shares Slide as Wall Street Weighs In With Caution

(Bloomberg) -- About a dozen Wall Street analysts began their coverage of Tradeweb Markets Inc. with neutral ratings, saying shares of the bond and derivative trading platform were fairly valued after a gain of almost 50 percent since its IPO in early April.

They’re bullish on the company’s growth prospects as electronic trading expands, and several see a potential takeout ahead. But that wasn’t enough to outweigh a nearly unanimous view that the shares were fairly valued. Shares fell as much as 3.8 percent in early trading Monday, the most intraday since April 17.

Tradeweb Shares Slide as Wall Street Weighs In With Caution

A 25-day quiet period for banks that underwrote the company’s entry into the public market expired on Monday. Tradeweb now has 12 hold ratings and two buy ratings (JPMorgan and Rosenblatt), according to data compiled by Bloomberg.

Here’s a sample of what some analysts are saying:

Goldman, Alexander Blostein

“‘Scarcity value’ does not leave much ‘fundamental value,”’ Blostein wrote in a note initiating the stock at neutral with a $41 price target.

“We view Tradeweb as a unique asset within capital markets, well-positioned to grow revenues from the electronification of fixed income trading markets by leveraging its history of innovation across a wide range of products and its expansive network of customers,” Blostein said. He also flagged margin expansion opportunities and the “potential for higher volatility against a late-cycle backdrop.” Even so, the stock’s post-IPO gain probably “appropriately discounts these secular and stock-specific tailwinds.”

Citi, William Katz

Risk/reward is “balanced with the growth opportunity fairly reflected at the current valuation,” Katz wrote in a note. At the same time, he sees downside risk reduced as “a broad investor consensus will likely set in around Tradeweb as a potential M&A target.”

Key positives include the company’s “broad product footprint and lengthy runways for further market share penetration,” along with a strong rates franchise and its position as a “key player in credit with substantial electronification tailwinds.” Key risks include a sub-peer operating margin, “intense competition across most markets,” the potential for a global macro slowdown to hurt volumes, and the “cyber threat of a potential market outage or security breach.”

Initiates at neutral, with a $42 price target

Barclays, Jeremy Campbell

Tradeweb’s 49 percent post-IPO rally keeps Barclays equal-weight, Campbell wrote in a note, adding that IPO investors got a “great deal” and an already very-solid return.

Although tailwinds for electronic fixed-income trading justify a premium compared with more “mature” exchange peers, the shares “look fully valued.” He likes the company’s diverse business model, unlike, for example, peer MarketAxess Holdings Inc.’s U.S. high-grade-centric growth. “Greater penetration in electronic credit would get us more bullish,”while low visibility on fee rates poses a risk and problems for forecasting, he said.

Sets price target at $39

Morgan Stanley, Michael Cyprys

The company’s long-term growth opportunity is largely priced in, Cyprys wrote in a note initiating the shares at equal-weight with a price target of $41. Morgan Stanley awaits “a better entry-point,” as Tradeweb is “an attractive structural growth play on the electronification of fixed income markets.”

BofAML, Michael Carrier

“We only see modest upside at this time,” given Tradeweb’s valuation and several risks, Carrier wrote in a note. That’s even though the outlook is “mostly attractive,” due to “multiple growth initiatives, structural and cyclical tailwinds, margin upside, and healthy cash flow.”

Carrier sees the company as well positioned given the migration of fixed income products onto electronic platforms and a likely pick-up in volatility and volume later into the market cycle. He also flagged the Tradeweb’s “vast network of customers.” He expects growth will come from underlying asset class size expansion, increasing markets share, particularly in credit and ETF markets, along with “remaining dominant in rates, accelerating its market data initiatives, expanding into new markets, and via additional acquisitions.”

Starts coverage with a neutral rating, $42 price targe

KBW, Kyle Voigt

Tradeweb is “uniquely positioned as the leading electronic institutional Treasury platform, with a small but growing presence in institutional electronic credit and ETF trading” Voigt wrote in a note. However, KBW’s “favorable opinion of Tradeweb and its ability to grow near-term is clouded by uncertainty regarding the appropriate pace of medium-term growth, combined with a rich valuation, with shares seemingly pricing in higher growth than we currently forecast.”

He said Tradeweb “has been realizing market share gains in a number of major products, due in part to regulation (i.e., MiFID II), and the global electronification of fixed income trading.” Those trends should continue, driven by MiFID follow-through, along with the buy-side’s “growing desire to make their trading desks more efficient, while also obtaining best execution for their clients.”

KBW doesn’t see an acquisition of Tradeweb as “financially feasible near term for most companies in our coverage, but some combinations could still make sense. Even absent an acquisition, the company maintains capital flexibility with significant firepower for acquisitions or a buyback.”

Initiates with market perform rating, price target of $40

Jefferies, Daniel Fannon

Starts coverage with a hold rating and a price target of $40 as “the risk/reward is fairly balanced.” Fannon added that Tradeweb “represents a unique business within financial services that has several attractive secular and cyclical growth attributes. While rates are the cornerstone of the business, credit and equities represent the fastest growing segments within the overall franchise.”

On April 8, Tradeweb said Refinitiv continues to own a controlling interest in Tradeweb following the offering. Bloomberg LP, the parent of Bloomberg News, competes with Refinitiv in providing financial data and information.

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