On Apr 15, we reiterated our Neutral recommendation on
NYSE Euronext Inc.
) based on its proposed merger with
) along with disciplined expense management.
Why the Retention?
Estimates for this global stock exchange witnessed minor
corrections since the company reported its fourth-quarter 2012
results on Feb 5. NYSE's fourth-quarter earnings per share and
net revenue of 43 cents and $562 million, respectively, topped
the Zacks Consensus Estimate. However, results were significantly
lower than the year-ago figures.
The deteriorating year-over-year performance was primarily due
to the poor transaction and clearing fees that plunged 19.4% as
well as market data revenue that declined 5.6%. Together, these
constitute about 72% of the gross revenue. While fixed operating
expenses dipped 6.0% year over year to $392 million, operating
margin tumbled to 30% from 34% recorded in the year-ago
Moreover, higher debt and capital expenditure deteriorated
NYSE's debt-to-EBITDA ratio to 2.5x at 2012-end from 1.6x at
2011-end. Meanwhile, operating cash flow declined 36.5% year over
year to $635 million at 2012-end, underscoring ample financial
and operating risks. Nevertheless, management anticipates
bringing down debt-to-EBITDA to below 2.0x in 2013.
Additionally, management's expense guidance for 2013, despite
capital investment initiatives, signals a flat trend. While NYSE
is on-track to realize 100% of its cost-synergies from Project 14
by 2014, more than $25-$30 million of savings are projected from
NYSE Liffe's shift to ICE Clear beyond Jul 2013. Further, this
shift is expected to minimize capital cost projections for the
Alongside, the proposed merger allows both
IntercontinentalExchange and NYSE to mutually benefit from the
diverse product portfolio, boosting the operating and competitive
leverage of the merged entity. With more than 15% of earnings
accretion within the first year of the merger startup, management
projects run-rate expenses synergies of about $450 million by the
Following the release of the fourth-quarter results, the Zacks
Consensus Estimate for 2013 inched up 2 cents to $2.34 per share
in the last 60 days. Conversely, the Zacks Consensus Estimate for
2014 remained flat at $2.86 per share in the last 60 days. With
the Zacks Consensus Estimates for both 2013 and 2014 exhibiting
no clear directional pressure in the near term, NYSE now has a
Zacks Rank #3 (Hold).
Other Financial Stocks That Warrant a Look
While NYSE tends to stay in the neutral lane in the near term,
other stocks in the financial sector that are outperforming
Euronet Worldwide Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
EURONET WORLDWD (EEFT): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis
To read this article on Zacks.com click here.