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Analyst Blog

On Mar 25, 2013, shares of Intercontinental Exchange, Inc. (ICE - Analyst Report) hit a 52-week high of $163.81. Previously, the company had reported fourth-quarter results with an earnings surprise of 5.1%. This securities exchange witnessed positive earnings surprises in three of four quarters in 2012, with an average beat of 3.4%.

On Feb 6, Intercontinental Exchange reported fourth-quarter 2012 operating income of $1.84 per share, surpassing the Zacks Consensus Estimate of $1.75 and year-ago earnings of $1.76 per share. Results reflect lower-than-expected expenses and low tax rate that helped maintain the margins and cash flow growth.  

In mid-March, Intercontinental Exchange announced its intention to launch four credit index futures (CDX), which will be based on the Markit CDX and Markit iTraxx indices. CDX are contracts that offer greater efficiency in credit risk management while hedging in the corporate credit market.

Moreover, the acquisition of NYSE Euronext, Inc. announced in Dec 2012 is expected to help Intercontinental Exchange emerge as one of the strongest players in the exchange industry, upon successful culmination in 2013.

Valuation for Intercontinental Exchange looks reasonable. The shares are trading at a 4.2% premium to the peer group average and in line with the peer group average on price-to-earnings basis. Return on equity is also in line with the peer group average. The 1-year return from the stock is 16.1%, much above S&P’s return of 10.9%.   

We believe that a high earnings visibility, strong product portfolio, consistent cash generation, disciplined investment and limited balance-sheet risk enable IntercontinentalExchange to be one of the most dynamic companies in the industry. The company is growing through strategic acquisitions, product novelty and expansion in the globally emerging markets. The overall long-term expected earnings growth rate for this stock is 11.2%.

IntercontinentalExchange presently carries a Zacks Rank # 3 (Hold). Other strong performers in the financial sector include Euronet Worlwide Inc. (EEFT - Snapshot Report) and Moody’s Corp. ( MCO ) , both of which carry a Zacks Rank #1 (Strong Buy).
 

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