New Coverage: $35 Price Estimate for NYSE Euronext
We recently launched coverage for NYSE Euronext ( NYX ), which owns and manages several stock exchanges, including the NYSE, Euronext (Europe), and NYSE Arca. NYSE is the largest global exchange, with nearly twice the transaction volume as Nasdaq ( NDAQ ), its main competitor, and approximately four times the combined market capitalization of Nasdaq's listed companies.
Share price for NYSE peaked above $100 per share in 2006-07 but has since declined, with the most dramatic drop occurring in 2008 when the stock lost almost 65% of its value. We maintain a price estimate of $34.77 for NYX , roughly 16% ahead of current market price. Our price estimate would represent the highest level the stock has seen since April 2010.
NYX Business Overview
NYSE Euronext's business can be divided into two major geographical divisions (a) North America and (b) Europe.
In North America, the New York Stock Exchange is the world's premier listing venue and the leading cash equities exchange. NYSE also lists debt and a variety of corporate structured products. Other exchanges in the U.S. include NYSE Liffe US, NYSE Arca and NYSE Amex.
In Europe, the Euronext is the first integrated cross-border exchange that combines the stock exchanges of Amsterdam, Brussels, Lisbon and Paris in a single market. All of Euronext's markets are operated by subsidiaries of Euronext, each of which holds a national license as an exchange operator. Other exchanges in Europe include NYSE Liffe, NYSE Arca Europe and NYSE Alternext.
Apart from maintaining the stock exchanges, NYSE Euronext also provides transaction, data and infrastructure services and manages solutions for exchange communities that require next-generation performance and expertise for client services.
US Cash Equity Trading
US Cash Equity Trading is the most valuable business segment for NYX, contributing about 25% to its stock value by our estimates.
NYSE is the world's leading operator in the cash trading market, in terms of both volume and value. NYSE provides the platform and services for trade execution of stocks listed on its exchanges, and charges transaction fees for these trades. In any given period, revenue from cash trading depends primarily on the number of shares traded on the NYSE.
NYSE is the largest stock exchange in the world but its market share in the US equity and ETF trading has declined over the past few years. Increased competition from new platforms like the BATS Trading Inc and the New Jersey based Direct Edge has caused NYSE's market share to drop from 50% in 2005 to about 30% in 2009.) Growing demand for electronic trading is the major reason new exchanges have been able to raise volumes and market share, primarily at the expense of NYSE.
However, NYSE has managed to mitigate the impact of the decline by drawing more business to its Arca electronic market. With NYSE's increasing focus on trading technology as well as its popular all-electronic exchanges (Arca and Amex), we anticipate that the company will be able to maintain its market share in the years ahead. We project stabilization around 26% market share over the next 2-3 years, followed by a gradual increase to 34% by 2017.
Growth will likely stem from the company's strong market position (more than double the number of listings of its closest competitor) as its focused effort to innovate trading technology will allow NYSE to grab share of increased volumes in the years ahead.