ICE Market Research & Analysis Report
Updated Aug 23, 2014

Growth and Balance Sheet

The company reported net income of $226 million, or $1.95 diluted earnings per share, for the second quarter of 2014 ending June 30. That's up from a net income of $154 million, but down from $2.09 diluted earnings per share for the same quarter last year, due to lower number of shares in the second quarter of 2013. Revenues for the second quarter were $1,011 million, up from $372 million for the same quarter last year. The huge increase is due to the acquisitions of NYSE on November 13, 2013 and Singapore Mercantile Exchange Pte. Ltd on February 3, 2014. Operating profit margin for the second quarter of 2014 was 32.34%, in comparison to 60.48% for the same quarter last year. Cash flow provided by operating activities for the first six months of 2014 was $836 million, in comparison to $382 million for the same period last year. Cash and cash equivalents as of June 30, 2014 were $2,057 million in comparison to $961 million as of December 31, 2013. ICE forecasted third quarter of 2014 EPS are in the range of $1.85 to $2.15, compared to actual EPS of $1.92 for the third quarter of 2013. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio of 1.01 is standing better than the industry average of 0.88. The interest coverage ratio of 23.47 is superior to the industry average of 9.25. In terms of efficiency, the asset turnover ratio of 0.05 is worse than the industry average of 0.08; the receivables turnover ratio of 8.52 is at better levels than the industry average of 2.80; and the ROE of 5.19% is ahead of the industry average of 3.90%. 

Valuation

ICE PE stands at 44.35 above the industry average of 12.49, and above the stock market average represented by the S&P 500 average of 18.50. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 16.49x to 57.17x trailing 12-month earnings. ICE's current Price/Sales of 8.69 is below the average of its industry of 9.94. ICE’s head to head comparison to its main competitors shows that company’s operating margin is trailing CME’s achieved margin, but it is above NDAQ, and it is above the industry average. The quarterly revenue growth of the company is the best result from the selected peers, and it is well above the industry average. However, it should be noted that due to acquisitions that the company made in the past year, comparability has been affected. ICE trades at the highest P/E ratio in comparison to the selected peers, and also at the highest P/S ratio. ICE’s twelve trailing months EBITDA is $1.50 billion, above NDAQ’s EBITDA, but below CME’s EBITDA. The stock is currently trading below its intrinsic value of $225.46, this suggests that the stock is currently undervalued at these levels. The beta of 0.95 implies slightly lower volatility of the stock with respect to the S&P 500. ICE has shown favorable earnings consistency over the last five years. However, its earnings have decreased by 5.07% over the last five years. The current quarter earnings in comparison to the same quarter last year have decreased by 6.69%. ICE’s Total Debt/Equity of 29.68 is above the required maximum, but it is below the industry average of 224.04. ICE’s current price levels are above the maximum level, 17.60% below the 52 week high of $229.50, and the technical analysis give a neutral to negative view of the stock. The majority of the analyst ratings are outperform. ICE has a dividend payout ratio of 36% and a trailing annual dividend yield of 1.00%.

About ICE

Intercontinental Exchange Inc, formerly IntercontinentalExchange Group, Inc., is a network of regulated exchanges and clearing houses for financial and commodity markets. The Company delivers transparent and accessible data, technology and risk management services to markets around the world through its portfolio of exchanges, including the New York Stock Exchange, ICE Futures, Liffe and Euronext. In February 2014, the Company completed the acquisition of Singapore Mercantile Exchange. In July 2014, Intercontinental Exchange Inc sold its Wombat Financial Software, a unit of NYSE Technologies.

Competitor Comparison

Intercontinental Exchange, Inc. (NYSE: ICE) N.V.

Highlights

Intercontinental Exchange, Inc. operates a network of regulated exchanges and clearing houses for financial and commodity markets in the United States, the United Kingdom, Continental Europe, and Canada. The stock closed yesterday’s trading session at $189.10. In the past year, the stock has hit a 52-week low of $177.26 and 52-week high of $229.50. The intrinsic value of the stock is above the current price. ICE has a market cap of $21.76 billion and is part of the Financial sector.

• Leadership in energy securities exchange market
• Geographic and product diversity provides for flexibility  
• Widely distributed leading edge technology for trading and trade processing    

• Trading volume driven primarily by the degree of volatility  
• Inflexibility in cost structure affects margins

ICE Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. ICE's 52 week high is $229.50, current price is $189.10, is 17.60% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.  The company has a P/E ratio of 44.35 the average industry P/E ratio is 12.49 and is above the S&P 500 P/E ratio of 18.50.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.  Insiders own 2.51% of ICE stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

ICE is trading in the range of $185.31 - $198.89 in the past 30 days. The stock has been showing support around the level of $184 and resistance in the $225 range. The stock is trading below the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 41.27. As can be seen from the chart on page 1, the stock has been in free fall since the beginning of the year. There is a wedge formation on the chart, which can be a continuation pattern or reversal, depending on which side the boundaries get broken. Our indicators give a neutral to negative view of ICE.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 4 Buy, 9 Outperform, 3 Hold, and 1 Underperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. ICE’s annual EPS for the last 5 years were 4.27, 5.35, 6.90, 7.52, and 3.31 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. ICE’s Total Debt/Equity of 29.68 is above the required maximum, but it is below the industry average of 224.04.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. ICE’s EPS growth for this quarter relative to the same quarter a year earlier is -6.69%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. ICE’s annual earnings growth rate over the past five years is -5.07%, below our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.