ICE Stays in Neutral Lane - Analyst Blog
03 Ottobre 2012 - 3:00PM
Zacks
We reiterated our Neutral recommendation on
IntercontinentalExchange Inc. (ICE) based on its
fundamental strength generated by new initiatives, acquisition and
alliances. However, intense competition and ongoing market
volatility deter the desired upside in the stock.
The company’s second-quarter 2012 operating earnings of $1.95
per share were a couple of pennies ahead of the Zacks Consensus
Estimate of $1.93 a share, and also outpaced the year-ago quarter’s
earnings of $1.64 per share.
The quarterly results of IntercontinentalExchange benefited from
favorable futures markets, strategic initiatives in clearing,
execution and record market data and other revenue, which in turn
led to modest top-line growth. The upside was also attributable to
capital efficiency, strict expense control lower tax rate and
growth in the company s core businesses.
Further, significant progress triggered by new initiatives led
to margin expansion. However, this was partially offset by lower
revenue from the over-the-counter (OTC) segment and credit default
swap (CDS) business.
Despite the global downturn, IntercontinentalExchange’s markets
have shown resilience due to the consistent client demand for the
company’s futures and OTC products along with its clearing and risk
management services. Additionally, strategic acquisitions and
alliances in the emerging markets and rapidly developing
product-areas such as energy, oil, gas, grains and oilseeds, are
enhancing the company’s competitive strength.
IntercontinentalExchange continues to be cost-effective given
its disciplined expense management. This is reflected by its
controlled mid-single-digit total expense growth in the past couple
of years and is further validated by management’s projection of
flat growth in 2012.
Moreover, the treasury cash and new credit facilities vigorously
exceeds the company’s total debt-funding position. The total
interest coverage also remains healthy along with a debt-to-EBITDA
of 0.9x at the end of June 2012, reflecting minimal capital
expending and solid operating cash flow growth that accelerated at
a CAGR of 25% for 2007–2011 along with 34% year over year
improvement in 2011 and 13.9% growth in the first half of 2012.
On the flip side, IntercontinentalExchange has been facing a
challenging global operating environment as most of the arch-rivals
are rapidly evolving through new and innovative product and service
launches in order to gain market share and stay ahead in the
competition. This has also relatively slowed down the growth
momentum of IntercontinentalExchange.
The recent outlay of growth plans by dominant players such as
NYSE Euronext Inc. (NYX) and CME Group
Inc. (CME) through acquisitions, setting up of
clearinghouses along with new product and service initiations in
the derivatives market have already pointed out the swiftly
changing dynamics of the exchange industry. In the future, the
company may even have to resort to price reductions and margin
contractions amid intense competition.
Additionally, IntercontinentalExchange’s operating leverage
continues to be marred by low interest rates and demand for
low-priced products that hinders the desired growth in trading
volumes. The adoption of the ongoing global regulatory reforms
would further add to the cost for infrastructural modifications,
while the regulatory constraints on block trading and margin
requirements on derivative securities would adversely hamper the
volumes growth and capital position of the company.
Overall, based on the pros and cons, the Zacks Consensus
Estimate pegs earnings for the third quarter of 2012 at $1.83 per
share, which is about 2% lower than the year-ago quarter. For 2012,
earnings are expected to grow about 9% over 2011 to $7.73 per
share. IntercontinentalExchange is scheduled to release its third
quarter financials before the bell on November 5, 2012.
Currently, IntercontinentalExchange carries a Zacks Rank #3,
implying a short-term Hold rating, indicating no clear directional
pressure on the stock in the near term.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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