On Sep 26, we reiterated our recommendation on NYSE Euronext Inc. at Neutral based on its disciplined expense management and improvement in trading volumes. However, intense competition, unfavorable currency and weakness in European markets partially offset the company’s growth.
Why the Retention?
Estimates for NYSE have remained steady since the company reported its second-quarter 2013 results on Jul 30. The company’s earnings per share of 63 cents and revenues of $611 million exceeded the Zacks Consensus Estimate by 8.6% and 1.5%, respectively.
Moreover, both top and bottom line surpassed the year-ago results by 23.5% and 1.5%, respectively, based on improved revenues from market data, transaction and clearing fees along with higher derivative revenues. In addition, strict expense control supported growth in operating margins and cash flow. However, technology service and listing revenues remained weak.
Following the release of the second-quarter results, the Zacks Consensus Estimate for 2013 edged up a penny to $2.35 per share in the last 60 days. However, the Zacks Consensus Estimate for 2014 remained intact at $2.85 a share over the same period. With the Zacks Consensus Estimate for both 2013 and 2014 showing no clear directional pressure on the stock in the near term, the company now has a Zacks Rank #3 (Hold).
However, the Most Accurate Estimate for NYSE’s 2013 earnings stands at $26.08 a share, resulting in an Earnings ESP of -0.85%.
With most of the regulatory approvals received and compliances dealt with, NYSE’s merger with IntercontinentalExchange Inc. (ICE - Analyst Report) is nearing completion and is likely to boost efficiencies, making it one of the strongest exchanges in the world. On the other hand, NYSE has been persistently making efforts to grow organically. Simultaneously, efforts to reduce debt and operating expenses, while also generating cost synergies from its business initiatives score well with ratings agencies and add to NYSE’s capital flexibility.
However, sluggish growth trend in trading volumes in both the U.S. and Europeis expected to continue in the upcoming quarters as well, given the volatility in interest rates, inflation and changes in price levels of contracts, as well as intense product and price competition. Additionally, the ongoing regulatory amendments across the U.S. and Europe, to make markets more competitive and negate systematic risks,limit the future growth potential.
Other Financial Stocks That Warrant a Look
While we remain on the sidelines for NYSE, other stocks in the financial sector that are outperforming include Official Payments Holdings Inc. and Total System Services Inc. (TSS - Analyst Report) . Both these stocks carry a Zacks Rank #2 (Buy).