ICE Poised to Grow from Acquisitions & Improved Liquidity
On Nov 28, we issued an updated research report on Intercontinental Exchange Inc. (ICE). Its targeted cost synergies, improved liquidity and spree of acquisitions make way for compelling long-term growth.
Moreover, an improved financial leverage of 1.6x at Sep 2014-end, along with strong operating cash flow that witnessed 64% year-over-year growth in the first nine months of 2014 bode well for business investments, acquisitions and capital deployment. ICE returned $738 million of capital via share repurchase and dividends in the first nine months of 2014.
Furthermore, within a year of the NYSE acquisition, ICE completed the strategic acquisitions ofSingapore Mercantile Exchange (:SMX) in Feb 2014 and SuperDerivatives in Oct 2014, while another purchase deal with Holland Clearing House (:HCH) is nearing closure. Gaining edge from diversification, ICE Benchmark Administration (IBA) assumed the administration of London Interbank Offered Rate (:LIBOR) and ISDAFIX, while that of LBMA Gold Price administration is expected by early 2015.
On the other hand, the complete successful transition of NYSE Liffe’s derivatives trading and clearing operations to ICE futures and clearing exchanges in Nov 2014 have created an excellent clearing model that is expected to grow substantially in the future. The transition has also madeICE Futures Europe the largest derivatives exchange in London by traded volume.
Additionally, the migration of NYSE Liffe’s New York Portfolio Clearing (:NYPC) operations to ICE Clear Europe in Jun 2014 and the sale of NYSE’s non-exchange technology businesses and Euronext initial public offering (IPO) have centralized ICE’s operations to make it a streamlined, flexible and exchange-centric company. Going forward, the company also aims to launch a new matching engine for U.S. equities and options by 2015–2016 to increase reliability and efficiency.
Nevertheless, operational risks arising from stringent regulations and stiff competition may restrict desired growth. A rising expense trend also threatens margin expansion, particularly, when the top line faces risk from faltered derivative volumes that declined 16% until Oct 2014.
Earnings Review
This Zacks Rank #1 (Strong Buy) stock has kept the earnings streak alive in the trailing four quarters with an average beat of 2.7%. The company’s third-quarter 2014 earnings of $2.15 a share topped the Zacks Consensus Estimate by 6.4% and the year-ago quarter figure by 9.1%. Higher revenues across segments act as chief growth catalyst, partly offset by higher expenses and lower trading volumes.
Overall, a favorable risk-reward profile in the near term has led to upward estimate revisions for 2014 and 2015. The Zacks Consensus Estimate rose 7.4% and 7% to $9.41 and $11.80 per share, respectively, in the last 30 days. On a year-over-year basis, earnings are expected to jump 15.2% and 25.4% in 2014 and 2015, respectively.
Other Promising Picks
Investors interested in the financial sector could also consider CBIZ Inc. (CBZ), FTI Consulting Inc. (FCN) and HNI Corp. (HNI), all of which sport the same Zacks Rank as ICE.
Read the Full Research Report on ICE
Read the Full Research Report on FCN
Read the Full Research Report on CBZ
Read the Full Research Report on HNI
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