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Here's Why You Should Hold Intercontinental (ICE) Stock

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Intercontinental Exchange, Inc. (ICE - Free Report) has been gaining momentum, given the company's strategic acquisitions, solid segmental performance, and strong capital position.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $4.88 and $5.25, indicating year-over-year increase of nearly 8.2% and 7.6%, respectively.

Earnings Surprise History

Intercontinental Exchange surpassed estimates in each of the last four reported quarters, with the average beat being 2.70%.

Zacks Rank & Price Performance

Intercontinental Exchange currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 19.7% compared with the industry’s increase of 28.1%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Return on Equity (ROE)

The company’s ROE for the trailing 12 months is 13.2%, better than the industry average of 12.8%, reflecting the company’s efficiency in utilizing shareholders’ fund.  The company aims to generate solid mid-teens returns for its shareholders.

Business Tailwinds

The Exchange segment is likely to benefit from an increase in interest rate business, increase in European natural gas revenues, higher revenues related to global environmental products, growth in energy open interest, and growth across financial futures and options complex.

In the third quarter, the company expects recurring revenues in the Exchange segment to be between $324 million and $329 million, representing nearly 5% growth year over year.

Continued growth in customer demand for ICE Global Network, increase in transaction fees, and growth in fixed income data and analytics products are likely to drive the Fixed Income and Data Services segment. For the third quarter, the company expects recurring revenues in Fixed Income and Data Services segment to improve sequentially to a range of $409 million to $414 million. Further, it expects 2021 recurring revenue growth to be toward the higher end of the 5% to 6% guidance range.

The combination of new customer growth and increased adoption of digital workflow tools across origination technology, closing solutions, and data and analytics are expected to boost the Mortgage Technology segment. In the second quarter, recurring revenues exceeded the high end of the guidance range. For the third quarter, the recurring revenues in Mortgage Technology are expected to grow sequentially and will be in the range of $137 million to $142 million, indicating nearly 30% growth year over year.

These three segments have been driving the company’s revenues as evident from the eight-year (2012-2020) CAGR of 25.2%. The trend is likely to continue in the days ahead. The Zacks Consensus Estimate for the company’s 2021 and 2022 revenues is pegged at $6.9 billion and $7.1 billion, respectively, indicating year-over-year increase of nearly 15.1% and 3.4%.

As part of its strategic initiatives, the company remains focused on acquisitions to strengthen its competitive position globally, broaden product offerings and services as well as support growth.

Intercontinental Exchange boasts strong liquidity and capital position. It generated free cash flow of $1.4 billion in the first half of 2021, up 33.6% year over year.

The company hiked its dividend by 10% in July 2021 and currently yields 1.2%, better than the industry average of 1%. This makes the stock an attractive pick for yield-seeking investors.

Stocks to Consider

Some better-ranked stocks from the finance sector are OTC Markets Group Inc. (OTCM - Free Report) , Nasdaq, Inc. (NDAQ - Free Report) , and Equifax, Inc. (EFX - Free Report) . While OTC Markets sports a Zacks Rank #1 (Strong Buy), Nasdaq and Equifax carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings of OTC Markets surpassed estimates in each of the last four quarters, with the average earnings beat being 35.73%.

Nasdaq surpassed estimates in each of the last four quarters, with the average earnings beat being 9.21%.

Earnings of Equifax surpassed estimates in each of the last four quarters, with the average earnings beat being 17.71%.