TMX Group stock is undervalued, National Bank says

TMX Group (TMX Group Stock Quote, Chart, News, Analysts, Financials TSX:X) reported second-quarter results after market close on July 31 that came in slightly ahead of expectations, driven by solid organic revenue growth and continued operating efficiency. Revenue rose 15% year over year to $422-million, matching National Bank Financial’s forecast and coming in above the Street consensus of $419-million. Adjusted earnings per share were 52 cents, up 21% from a year earlier and a penny ahead of consensus.

As reported by the Globe and Mail, National Bank Financial analyst Jaeme Gloyn said the quarter supports his view that TMX’s strong operating performance continues to justify its valuation premium.

“TMX continues to deliver positive operating leverage of 7% as organic revenue growth of 13% exceeded organic expense growth of 6%,” he said in a July 31 note. He added that derivatives revenue outperformed thanks to stronger capture rates at the Montréal Exchange, with CGF incentives now phased out. GSIA revenues also contributed to the beat, with all three of Trayport, VettaFi, and Datalinx surpassing expectations. In Capital Formation, stronger revenues from additional listings helped offset softer issuer services revenue, which was impacted by lower interest income.

With upward revisions to his 2025 and 2026 earnings forecasts, Gloyn raised his target price by $1 to $59, just below the $59.25 average among analysts. He maintained a “Sector Perform” rating, noting that while the long-term outlook remains favourable, the current premium valuation could limit near-term upside if broader market sentiment improves and investors rotate toward higher-risk names.

Gloyn expects TMX to deliver double-digit EPS growth through 2026, supported by momentum in its derivatives and data businesses, continued trading activity amid market volatility, and a possible recovery in additional listings revenue as M&A activity returns. He also emphasized the company’s strategic execution, diversified and recurring revenue base, and strong balance sheet as defensive strengths in an uncertain market environment.

“Our estimates imply double-digit EPS growth rates through 2026 as we anticipate continued solid growth from TMX’s rapid growth segments (e.g., Derivatives, Trayport, VettaFi, Issuer Services), upside in trading volumes near term given volatility, and a potential medium-term rebound in additional listings revenues as M&A activity flows through,” he said. “That said, we maintain our ‘Sector Perform’ rating considering a lower total return to our target price relative to other companies in our coverage universe.”

TMX Group CEO John McKenzie said the company’s first-half performance reflects strong momentum across its core businesses and progress on its long-term strategy.

“TMX delivered outstanding results for the first half of the year, with 18% growth in revenue and a 22% increase in operating income, reflecting sustained positive momentum in key drivers across the enterprise, including higher derivatives and equities trading volumes, as well as pronounced growth in our Global Insights business, highlighted by TMX Trayport and TMX VettaFi,” he said. “With global trade uncertainty impacting economies around the world, strong capital markets remain a fundamental component of the financial ecosystem. The first six months marked important steps forward in executing TMX’s long-term strategy to adapt and evolve our client offerings to better serve this vital ecosystem, and our growing client base throughout the world.”

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