Nasdaq could benefit despite LSE rejection

By Jonathan Keehner

NEW YORK, Feb 12 (Reuters) - The Nasdaq Stock Market (NDAQ.O: Quote, Profile, Research, Stock Buzz), despite being rebuffed by the London Stock Exchange (LSE.L: Quote, Profile, Research, Stock Buzz) over the weekend, could actually benefit from its failed takeover bid for the U.K. bourse.

LSE shareholders on Saturday overwhelming rejected Nasdaq's 2.7 billion pound ($5.31 billion) offer, ending a heated saga between the two exchanges with Nasdaq continuing to own just under a third of LSE.

But the top U.S. electronic exchange could rebound quickly from this setback, analysts said, noting strength in Nasdaq's core businesses as well as the strategic value of its LSE stake.

"January volume numbers were solid and this uncertainty is now past," said Keefe, Bruyette & Woods analyst Richard Herr, who added that Nasdaq's fundamental performance warranted a higher valuation given the valuation of comparable exchanges.

Nasdaq shares traded at 56 times earnings per share over the last twelve months, according to Reuters Knowledge, while main rival NYSE Group (NYX.N: Quote, Profile, Research, Stock Buzz) traded at 68 times and recently public NYMEX Holdings NMX.N was at 64.

Nasdaq shares were down $2.91, or 8 percent, at $34.30 in afternoon trading on Monday, the first business day after LSE's rejection. Among the risks now faced by shareholders are a Nasdaq sale of the LSE stake at a loss and exposure to underperformance at LSE, wrote Sandler O'Neill analyst Richard Repetto in a note to clients.

But Nasdaq shares should move higher as the market refocuses on its fundamentals, Fox-Pitt, Kelton analyst Edward Ditmire wrote in a note.