News

Intercontinental Exchange’s stock (NYSE: ICE) has gained roughly 15% YTD, as compared to the 17% rise in the S&P500 over the same period. In sharp contrast, Intercontinental Exchange’s peer CME Group (NASDAQ: CME) is up only 5% YTD. Overall, at the current price of $147 per share, ICE stock is trading 7% below its fair value of $159 – Trefis’ estimate for Intercontinental Exchange’s valuation.

Amid the current financial backdrop, ICE stock has shown strong gains of 25% from levels of $115 in early January 2021 to around $145 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in ICE stock has been far from consistent. Returns for the stock were 19% in 2021, -25% in 2022, and 25% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that ICE underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ICE face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company posted mixed results in the first quarter of 2024, with earnings being in line with the consensus but revenues missing the mark. It reported net revenues (revenue minus transaction-based expenses) of $2.29 billion – up 21% y-o-y. The increase was mainly due to a 111% jump in the mortgage technology revenues, followed by an 11% decrease in the transaction-based expenses and a 5% gain in the transaction & clearing income. On the cost side, the operating expenses increased 32% y-o-y in the quarter, negatively impacting the bottom line. Overall, the adjusted net income was $767 million – up 17% y-o-y.

The net revenues grew 10% y-o-y to $7.99 billion in FY2023. It was primarily because of an 18% drop in transaction-based expenses, a 17% rise in the mortgage technology segment, and a 7% gain in the fixed income & data services revenues. Further, the operating expenses as a % of revenues witnessed an unfavorable increase over the same period, but the impact was more than offset by a decrease in total other expenses from $1.83 billion to $800 million. Altogether, the adjusted net income rose by 64% y-o-y to $2.37 billion.

Moving forward, we expect the Q2 results to be on similar lines. Further, consensus estimates for Q2 2024 revenues and earnings are $2.30 billion and $1.48 respectively. Overall, Intercontinental Exchange revenues (total revenues) are forecast to touch $11.35 billion in FY2024, translating into net revenues of around $9.19 billion. Additionally, ICE’s adjusted net income margin is likely to improve in the year, leading to an annual GGAP EPS of $5.90. This coupled with a P/E multiple of just below 27x will lead to a valuation of $159.

[1] Returns as of 7/12/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios See all Trefis Price Estimates

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.