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NYSE Euronext (NYX)

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NYSE Euronext's (NYX) third quarter earnings 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, while low cash position and high debt raised the concerns of rating agencies, capital deployment remained intact.

The launch of NYPC platform, new data centers and IRS derivatives on U.S. Liffe boost long-term revenue opportunities. NYSE aims to further augment long-term growth strategies by developing a clearing house in Europe, enhancing technology and risk-management services and global expansion, among others. But these initiatives carry an initial cost and regulation burden.

Our six-month target price of $22.00 equates to about 11.7x our earnings estimate for 2012. With an annual dividend of $1.20, this price target implies a negative total return of 6.9% over that period. This is consistent with our long-term Underperform recommendation on the shares.

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