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Intercontinental Exchange’s (ICE) Organic Growth on Track


On Sep 19, 2016, we issued an updated research report on Intercontinental Exchange, Inc. ICE.

Intercontinental Exchange’s organic growth is on track with strong performance by its exchanges and seven clearing houses that cover nine asset classes. Further, the securities exchange has been able to drive inorganic growth through strategic acquisitions and spin-offs, which is reflected in increased assets and global expansion.

Notably, Intercontinental Exchange is the first exchange to provide clearing in the Over-The-Counter (OTC) energy and credit markets, which accounts for more than one-third of the global cash trading.

It is a well-known fact that cost savings lead to margin expansion. In fact, the securities exchange estimates cost savings to expand its margins to about 60% by the end of 2016. The company now expects adjusted operating expenses in the range of $1.94–$1.97 billion in 2016. The guidance includes $85–$90 million in synergies, about one-third of the total expense reduction, the company is estimated to deliver over the next three years. For third-quarter 2016, the synergies are estimated between $485 and $495 million.

Further, Intercontinental Exchange boasts a robust capital and liquidity position, which will continue to provide stability to the company in the medium to long term.

However, exposure to low interest rates, along with demand for low-priced products, has adversely affected trading volumes. These pose risks to transaction and clearing revenues that account for the majority of the company’s top line. The expected long-term earnings growth is currently pegged at 12.60%.

Recently, the securities exchange released its results for August, wherein it reported a 6.8% sequential decline in Average Daily Volume (ADV) to about 4.1 million futures and options. Intercontinental Exchange anticipates growth of the futures to remain sluggish.

While the Zacks Consensus Estimate for 2016 witnessed a downward estimate revision over the last 30 days, it was revised upward for 2017 over the same time frame.

Zacks Rank and Stocks to Consider

Currently, Intercontinental Exchange carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the finance sector are MarketAxess Holdings Inc. MKTX, National Interstate Corporation NATL and NMI Holdings, Inc. NMIH. While both National Interstate and NMI Holdings sport a Zacks Rank #1 (Strong Buy), MarketAxess Holdings holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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