Just about everything in our lives that we use, drive, fly, eat
and essentially need to survive comes in part or in whole from a
commodity. Commodities are generally traded using
futures contracts that help professionals, farmers and big
companies lock in prices for different assets. Commodities
include everything from oil and gas, to gold and silver down to
coffee and the sugar you put in it. Even the dollars that you
spend are a commodity of sorts.
Our consumption of commodities and perhaps more importantly, the
trading and risk management of those commodities are an essential
and growing part of global business.
Advances in global economic integration as well as financial
reform measures such as Dodd-Frank and others are moving market
participants to trade their financial instruments on centralized,
monitored exchanges so we can help avert another financial meltdown
like we had in 2008.
For Intercontinental Exchange, it has the capability and could
stand to benefit further from an increase in exchange traded
products including derivatives, futures and other financial
instruments. The question really is how much and how
Company Description & Developments
IntercontinentalExchange operates some of the world's leading
regulated exchanges, trading platforms and clearing houses.
The products traded on their exchanges serve the global markets for
agricultural, credit, currency, emissions, energy and equity
They are headquartered in Atlanta, with offices in New York,
London, Chicago, Winnipeg, Calgary, Houston and Singapore.
The key to the company is their scalable, technologically
advanced and efficient markets. ICE's state of the art
trading platforms allow for some of the fastest execution times in
the industry and most importantly allow market participants and
regulators a centralized, transparent trading platform that is
governed by set of risk and decorum rules.
Recently there was chatter of the ICE as well as the CME
possibly buying the smaller
(LME). Consolidation is almost inevitable in the
exchange world as we all want a place to execute our buy and sell
orders at the best price. Of course, there will be some
competition, but the amount of smaller regional exchanges will most
likely diminish and their volume be absorbed by companies like
ICE is a large-cap (10.3 billion) company that is trading at about
17.58 times forward (expectations for next quarter) earnings.
ICE recently became a Zacks Rank 1 strong buy on March 7th,
IntercontinentalExchange reported a quarterly sales decrease of
4% at their last earnings report and saw a 5.88% drop in EPS for
the same period. This quarterly weakness was offset with
total annual revenue up 15% compared to (fiscal) FY2010 on total
sales of roughly 1.33 billion in FY2011.
Consolidated net income attributable to ICE for the quarter grew
28% to $127 million. Diluted earnings per share (
) in the quarter increased 29% to $1.73.
ICE earnings increased from $5.35 in FY2010 to $6.90 in FY2011
(diluted) and they expected to earn $8.07 in FY2012 according to
the Zacks Consensus Estimate.
Revenues from ICE's CDS execution and clearing businesses
totaled $167 million, comprised of $100 million from Creditex and
$67 million from global CDS clearing. As of the end of the last
quarter, ICE's CDS clearing houses have cleared $27.3 trillion in
gross notional value, including nearly $12 trillion cleared during
ICE expects 2012 expenses to be in line with 2011 expenses, and up
in the range of 3% to 6% on an adjusted expense basis, including
compensation expense up in the range of 6% to 7%.
They continue their share repurchase program with $47 million
acquired in the fourth quarter of 2011. Approximately $334 million
remains in ICE's repurchase program. Overall volume is
increasing at ICE and they expect Over the Counter (OTC) revenues
to increase over the coming year.
Alliance has surprised analysts to the upside 4 quarters in a
row at an average of almost 4.5%. Of the 18 analysts who
cover ADS, the consensus is for the company to grow earnings by 14%
in the current year (FY2012) and roughly 12% in FY2013.
In terms of the magnitude of analyst estimate trends, we are
seeing all of the consensus estimates higher than they were 90 days
ago for the current and next quarter as well as FY2012 and
Market Performance & Technicals
IntercontinentalExchange rallied sharply after its last earnings
report, sending the shares above some key resistance and propelling
the shares above the 50 and 200 day moving averages.
The recent momentum elevated above a channel that it was unable
to break above for some time. That $128 area now becomes
strong resistance and it just about in line with the current 50 day
The recent consolidation is also helpful to add support to the
current price levels of ICE.
ICE has exceeded the S&P 500's performance in the past year
by 7% and outpaced it by over 7% in the past 3 months during its
recent rally which obviously confirms the strength has been
recent. The stock remains in a bullish trend and has
maintained its momentum in the past month, leading the index by
ICE not only tends to be highly correlated with the market at a
BETA of 1, but it also will be sensitive to trading volumes and
global economic health.
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He
is also the Editor in charge of the market-beating
Zacks Whisper Trader Service.
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