Intercontinental Exchange (NYSE: ICE) is scheduled to report its fiscal Q2 2021 results on Thursday, July 29. We expect Intercontinental Exchange to beat the consensus estimates for net revenues, while the earnings are likely to miss the mark. The exchange posted better than expected results in the last quarter, with its net revenues (total revenues less transaction-based expenses) increasing by 15% y-o-y. The growth was primarily due to a significant jump in mortgage technology revenues, partially offset by a marginal dip in clearing & transaction revenues. We expect the non-trading revenues to maintain their growth momentum in the second quarter, followed by some improvement in the clearing & transaction revenues.
Our forecast indicates that Intercontinental Exchange’s valuation is around $132 per share, which is 10% above the current market price of around $120. Look at our interactive dashboard analysis on Intercontinental Exchange’s pre-earnings: What To Expect in Q2? for more details.
(1) Net revenues expected to be ahead of consensus estimates in Q2
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Trefis estimates Intercontinental Exchange’s fiscal Q2 2021 net revenues to be around $1.76 billion, 2% above the $1.72 billion consensus estimate. The company reported total revenues of $8.2 billion in 2020 – up 26% y-o-y, which translated into a 16% growth in the net revenues of $6 billion. The trading volumes were unusually high in 2020 due to the Covid-19 crisis and the economic uncertainty. This resulted in a 33% growth in clearing & transaction fees, which contributes close to 50% of the total revenues. Further, its mortgage technology revenues grew 2.28x in the year. That said, the non-trading revenues continued their growth momentum in the first quarter of 2021, also. However, the clearing & transaction revenues were slightly down due to some decline in the trading volumes, as compared to the year-ago period. We expect the clearing & transaction revenues to report positive growth in the second quarter driven by higher trading volumes. Additionally, the non-trading revenues are likely to follow the same trend as Q1.
Moving forward, we expect the trading volumes to normalize with recovery in the economic conditions. However, it will take some time. Further, the non-trading revenues are likely to continue their positive growth in FY2021. Overall, we expect the ICE revenues to touch $9.2 billion in the current year. Our dashboard on Intercontinental Exchange’s revenues offers more details on the company’s segments.
2) EPS is likely to miss the consensus estimates
Intercontinental Exchange’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.13 per Trefis analysis, almost 3% below the consensus estimate of $1.17. ICE’s profitability figures improved in 2020 – adjusted net income increased by 8% y-o-y to $2.1 billion, driven by higher revenues. Further, the same trend continued in the first quarter of 2021, and we expect it to drive the second-quarter results, too.
The net income margin is likely to decline in FY2021 from 25.3% to 18.3% due to higher operating expenses. Overall, this will restrict its EPS to around $3.15 in the year.
(3) Stock price estimate 10% more than the current market price
Going by our Intercontinental Exchange’s valuation, with an EPS estimate of around $3.15 and a P/E multiple of just above 42x in fiscal 2021, this translates into a price of $132, which is 10% above the current market price of around $120.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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