Intercontinental Exchange Inc. ICE shares have gained 21.7% year to date, outperforming the industry’s increase of 16.3%. It however underperformed the sector’s rise of 23.8% and the Zacks S&P 500 composite’s gain of 27.1% in the same time frame.
The company has a market capitalization of $89.7 billion. The average volume of shares traded in the last three months was 2.9 million.
A compelling portfolio, expansive risk-management services, strategic buyouts, solid balance sheet and effective capital deployment poise it well for growth.
ICE Vs Industry, Sector and S&P 500 in 3 Months
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ICE shares are trading well above the 50-day moving average, indicating a bullish trend.
Muted Analyst Sentiment Keeps Us Cautious on ICE
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved down 2 cents each in the past 30 days.
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What’s Impacting ICE?
Strength in global data services and index business, growth in pricing and reference data business, and strength in ICE Global Network offering, solid desktop, feeds and derivatives analytics revenues should accelerate growth.
An impressive inorganic growth track, apart from a strengthening portfolio and expanding presence, helps it achieve expense synergies.
ICE boasts the largest mortgage network across the United States and thus remains well poised to benefit from accelerated digitization in the residential mortgage industry.
The Zacks Consensus Estimate for 2024 implies an 8% year-over-year increase, while the same for 2025 suggests an 11.1% increase. The long-term earnings growth rate is currently pegged at 9.4%, better than the industry average of 8.5%.
ICE continuously engages in strategic investments, which in turn are supported by a healthy and minimal risk-based balance sheet that also offers stability and buoyancy over the medium to long term.
However, operating expenses have been increasing over the last several years, weighing on margin expansion. With continuous growth initiatives like product launches and technology upgrades, we believe that expenses are likely to remain elevated in the near term.
For the fourth quarter of 2024, GAAP operating expenses are expected in the range of $1.23-$1.24 billion. Adjusted operating expenses are projected to be between $977 million and $987 million. GAAP and adjusted non-operating expenses are both expected to be in the range of $180-$185 million.
Though the debt balance declined, leverage as well as times interest earned compares unfavorably with the industry average.
ICE’s Return on Capital
Return on invested capital (ROIC) has increased every year. This reflects ICE’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 6.2%, higher than the industry average of 5%.
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Return on equity (ROE) reflects efficiency in utilizing shareholders’ funds. However, ICE's trailing 12-month ROE was 12.8%, which compared unfavorably with the industry average of 13.3%.
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Average Target Price for ICE Suggests an Upside
Based on short-term price targets offered by 16 analysts, the Zacks average price target is $181.38 per share. The average suggests a potential 14.6% upside from Tuesday’s closing price.
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ICE's Attractive Valuation
Shares are trading at a discount to the Zacks Securities and Exchange industry. Its forward price-to-earnings of 23.33X is lower than the industry average of 24.11X.
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The stock remains attractively valued compared with MarketAxess Holdings Inc. MKTX but unfavorable when compared with Nasdaq Inc. NDAQ and CME Group CME.
Parting Thoughts
Intercontinental is the second-largest global fixed-income provider, with more than 5,000 indices representing more than $1 trillion in benchmark assets under management. An expansive and compelling product and a broad range of risk management services ensure recurring revenues for ICE. Its dividend history is impressive. It has more than doubled its dividends in the last six years.
Given unfavorable ROE, margin pressure and muted analyst sentient, it is better to adopt a wait-and-see approach for this Zacks Rank #3 (Hold) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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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 Nasdaq, Inc.
