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Bear of the Day

NYSE Euronext's (NYX) third quarter earnings breezed past the Zacks Consensus Estimate but plunged year over year based on weak volumes and pricing across trading venues, which led to a reduced top line and lower operating margin. However, lower expenses partially offset the downsides, although capital deployment remained intact.

The proposed merger with ICE should eventlly boost efficiencies although higher debt raises the concerns of the rating agencies. NYSE aims to further augment the long-term growth strategies by developing a clearing house in Europe, enhancing technology and risk-management services and global expansion, among others. These initiatives carry an initial cost and regulation burden.

Our six-month target price of $29.00 equates to about 16.0x our earnings estimate for 2012. With an annual dividend of $1.20, this price target implies a negative total return of 8.2% over that period. This is consistent with our long-term Underperform recommendation on the shares.

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