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Intercontinental Exchange (ICE) Up 4.1% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Intercontinental Exchange Inc. (ICE - Free Report) . Shares have added about 4.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Intercontinental Exchange Tops Q4 Earnings; Costs Up

Intercontinental Exchange reported fourth-quarter 2016 adjusted earnings per share of $0.71, beating the Zacks Consensus Estimate of $0.69. Also, earnings improved 9.2% year over year.

Results were aided by growth across the company’s data and listings business segments. However, the quarter recorded higher expenses.

Adjusted net income of the reported quarter climbed 16% year over year to $428 million.

On GAAP basis, net income came in at $352 million or $0.59 per share compared to $370 million or $0.66 per share.
 
For 2016, adjusted net income was $1.67 billion or $2.78 per share, as against $1.36 billion or $2.43 per share in 2015. The Zacks Consensus Estimate for 2016 was $2.75.

Performance in Details

Total revenue of $5.96 billion in 2016 surpassed the Zacks Consensus Estimate of $4.49 billion. Also, revenues jumped 27.1% year over year.

For fourth-quarter 2016, revenues of $1.48 billion increased 21.7% year over year. Further, the reported figure surpassed the Zacks Consensus Estimate of $1.13 billion. This increase was primarily due to significant increase in data services revenues and rise in listings revenues, as well as transaction and clearing revenues. Other revenues remained flat year over year.

Total operating expenses surged 27% year over year to $580 million in the reported quarter. The rise primarily reflected higher compensation and benefits, technology and communication and depreciation and amortization.

Operating income grew 33.5% to $558 million. Operating margin was 49% in the reported quarter.

Financial Update

For 2016, cash flows from operations were $2.1 billion, up 64% year over year.

At the end of the quarter, Intercontinental Exchange had cash and cash equivalents of $407 million, down from $627 million as of Dec 31, 2015. Long-term debt was $3.87 billion, down from 4.72 billion at the prior-year end.

Total equity was $15.75 billion as of Dec 31, 2016, up from $14.84 billion as of Dec 31, 2015.

Guidance

For 2017, Intercontinental Exchange anticipates data services revenues to increase by at least 6% in constant currency.

Adjusted operating expenses are expected to be in the range of $1.94–$1.98 billion for 2017. For first-quarter 2017, adjusted operating expenses are estimated to be in the range of $495–$505 million.

Moreover, the company expects to realize expense synergies of about $60 million in 2017.

Regarding capital expenditures for 2017, the company expects $280–$300 million for operational capital expenditures and capitalized development to be in the range of $40 –$45 million for real estate capital expenditures. Interest expense is estimated in the range of $44–$45 million per quarter.

Tax rate is projected in the estimated in the range of 28–31% for 2017.

Intercontinental Exchange's diluted share count for full-year 2017 is likely to be in the range of 595–605 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter.

VGM Scores

At this time, Intercontinental Exchange's stock has a subpar Growth Score of 'D', while it is lagging a bit on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.


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