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NYSE Euronext Downgraded to Strong Sell

ICE CME

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Zacks Investment Research downgraded NYSE Euronext Inc. to a Zacks #5 Rank (Strong Sell) on January 5.

Why the downgrade?

Posting disappointing results consecutively for the first three quarters of 2012, NYSE has witnessed sharp declines in its estimate revisions. Shares of this 220-year old stock exchange have been witnessing a downward trend since May 2011. Although it showed some improvement from the historical lows, it is yet to return to its record highs.

Moreover, the proposed merger with IntercontinentalExchange Inc. (ICE - Analyst Report), announced last month, has made ratings agencies concerned about the huge combined debt of the merged entity amid low working capital. Although the business profile of the merger appears strong and is expected to generate strong cost synergies and competitive leverage, it also raises questions over the future of NYSE

On November 6, NYSE reported third-quarter 2012 operating earnings per share of 44 cents, up 3 cents from the Zacks Consensus Estimate. However, results plunged 38% from 71 cents recorded in the year-ago quarter.

Results primarily witnessed deterioration as the top line slid 20.6% year over year, driven by poor transaction and clearing fees and market data revenue that constitute about 73% of the gross revenue. A drastic decline in volumes across all global derivatives and cash trading venues along with unfavorable currency fluctuations and lower average revenue per contract also restricted growth.

Consequently, the Zacks Consensus Estimate for 2012 decreased 5.0% to $1.80 per share over the last 60 days as 13 out of the 14 estimates were revised downward. For 2013, 12 of 14 estimates were revised downward over the last 60 days, dipping the Zacks Consensus Estimate by 5.2% to $2.30 per share.

Other Stocks to Consider

However, not all players in the stock exchange industry are underperforming like NYSE. Its close competitors IntercontinentalExchange and CME Group Inc. (CME - Analyst Report) carry a Zacks #3 Rank (Hold), implying stability in the near future.

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