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ICE (ICE) Up 6.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for IntercontinentalExchange (ICE - Free Report) . Shares have added about 6.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ICE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Intercontinental Exchange Q3 Earnings Top, Rise Y/Y

Intercontinental Exchange, Inc. delivered third-quarter 2018 adjusted earnings per share of 85 cents, beating the Zacks Consensus Estimate of 80 cents by 6.3%. Also, the bottom line improved 16.4% on a year-over-year basis.

The company’s performance in the reported quarter represented a strong performance across futures, cash equities, listings and data services business lines, thereby marking the 22nd consecutive quarter of revenue growth on a year-over-year basis.

Apart from reporting record revenues plus earnings, the company was able to generate record operating cash flows. With the current year coming to an end, the company remains committed to its growth initiatives along with value creation.

On a GAAP basis, net income was 79 cents per share, up 25.4% year over year.

Performance in Detail

Intercontinental Exchange’s revenues of $1.2 billion increased 4.7% year over year on higher revenues at transaction and clearing, net (0.3%), data services (2.3%), listings segments (6.7%) as well as other revenues (12.9%). Moreover, the top line outpaced the Zacks Consensus Estimate by 0.7%.

Total operating expenses increased 8.7% year over year to $598 million, primarily due to higher compensation and benefits, professional services, acquisition-related transaction and integration costs, technology and communication as well as depreciation and amortization. Adjusted operating expenses were $521 million in the third quarter, up 8.8% from the year-ago quarter’s figure.

Adjusted operating income inched up 1.8% year over year to $679 million. Adjusted operating margin was 57%, having contracted 100 basis points.

Trading and Clearing's adjusted operating income of $352 million grew 2.9% year over year while adjusted operating margin contracted 200 basis points. Data and Listings' adjusted operating income nudged up 0.6% year over year to $327 million while adjusted operating margin contracted 100 basis points.

Financial Update

As of Sep 30, 2018, Intercontinental Exchange had cash and cash equivalents of $1.3 billion, up 2.1% from the level as of Dec 31, 2017. Long-term debt of $6.5 billion inched up 52.1% from 2017-end level.

Total equity was $16.85 billion as of Sep 30, 2018, which dipped 0.8% from $16.99 billion as of Dec 31, 2017.

Free cash flow was $1.7 billion in the first nine months of 2018, up 33.3% year over year.

Share Repurchase and Dividend Update

During the third quarter, the company bought back shares worth approximately $1.1 billion. It has nearly $1.5 billion throughout the reported period.

In the quarter under review, the company paid dividends amounting to $417 million.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, ICE has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ICE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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