IntercontinentalExchange, Inc. - Momentum


IntercontinentalExchange ( ICE )

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 quickly.

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 indices. 

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 London MetalExchange (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.

Financial Profile

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, 2011

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 ( EPS ) 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 2011.

Earnings Estimates
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 FY2013.

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 moving average.  

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 about 3%.    

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 He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.



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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, Inc.

This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: EPS , ICE

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