ICE Group Down to Strong Sell on Persistent Low Volumes - Analyst Blog

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On Aug 21, 2014, Zacks Investment Research downgraded Intercontinental Exchange Inc. ( ICE ), or ICE Group, by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

ICE Group has been witnessing downward estimate revisions since the company's second-quarter 2014 results and a continued sluggish growth outlook, despite the recent renovation in operations. Additionally, this global exchange operator underperformed the one-year S&P 500 index, which recorded growth of 12.7% against a negative return of 5.1% clocked by the company.

On Aug 7, ICE Group reported second-quarter 2014 operating earnings per share (EPS) of $2.10, which exceeded the Zacks Consensus Estimate by 4% but lagged the year-ago quarter figure by 4.1%.

Average daily volumes of total futures and options persistently fell 20% until July this year, reflecting weakness in average rate per contract as well. Moreover, higher expenses that spiked 188% year-over-year more than offset top-line growth of 102%.

Consequently, operating margin deteriorated to 43.6% from 60.5% in the year-ago quarter. The absence of share buybacks throughout 2013 and the first half of 2014 also limited EPS growth, although some repurchase activity was undertaken last month.

ICE Group's business consolidation is also incurring higher operating and capital expenses, the immediate effect of which is being witnessed in the deteriorating margins. Alongside, though the company has reduced a chunk of its debt from 2013-end, debt leverage still remains at cautious level.

ICE Group also faces major headwinds fromintense competition, weak industry dynamics, challenging regulations and declining volatility that hurt derivative performance.These factors also making investors jittery about desirable growth in the near-term.

Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 declined 2.4% and 4.5% to $9.00 and $11.22 a share, respectively, in the last 30 days. No upward estimate revision was witnessed for both these years.

Moreover, the Most Accurate estimate for ICE Group's 2014 and 2015 earnings currently stand at $8.89 and $10.97 a share, resulting in an Earnings ESP of -1.2% and -2.2%, respectively, which signal continuous weakness.

Financial Stocks that Warrant a Look

While we prefer to avoid ICE Group for the time being, better-ranked financial stocks like Fortegra Financial Corporation ( FRF ), Vantiv Inc. ( VNTV ) and The St. Joe Company ( JOE ) are worth considering. All these stocks sporta Zacks Rank #1 (Strong Buy).


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INTERCONTNTLEXC (ICE): Free Stock Analysis Report

ST JOE CO (JOE): Free Stock Analysis Report

VANTIV INC-A (VNTV): Free Stock Analysis Report

FORTEGA FIN CP (FRF): Free Stock Analysis Report

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



This article appears in: Investing , Business , Stocks

Referenced Stocks: EPS , ICE , JOE , VNTV , FRF

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