Intercontinental Exchange’s stock (NYSE: ICE) has so far underperformed the S&P500 in 2022 – down 14% YTD vs. an 8% decline in the S&P500. Further, at its current price of $117 per share, it is trading 23% below its fair value of $151 – Trefis’ estimate for Intercontinental Exchange’s valuation. The company posted better than expected earnings in the fourth quarter. It reported total net revenues (revenue minus transaction-based expenses) of $1.8 billion, which is 10% more than the year-ago period. The top-line primarily benefited from lower transaction-based expenses, which decreased from 25.2% to 21% of total revenues, followed by some growth in fixed income and data services revenues. That said, while the revenues increased only 10% y-o-y in the quarter, the adjusted net income almost tripled to $1.5 billion. This unusual rise was driven by a $1.4 billion gain on the deconsolidation of “Bakkt” (a digital assets platform).
The company’s net revenues increased 18% y-o-y to $7.1 billion in 2021. This increase was partly due to lower transaction-based expenses, and partly due to a 136% growth in the mortgage technology business. Notably, the drop in the transaction-based expenses led to a 17% rise in the exchange segment net revenues. Further, the significant increase in mortgage technology was due to a jump in origination technology revenues from $316 million to $971 million. All in all, the above growth in top-line and $2.7 billion in other income, resulted in an almost 100% increase in the adjusted net income to $4.1 billion.
The exchange has witnessed elevated trading volumes since 2020, due to uncertainty in the market. However, we expect the volumes to normalize in the coming months, with an improvement in the economy. That said, the mortgage technology business is likely to maintain its growth momentum over the coming months. Overall, Intercontinental Exchange revenues (total revenues) are expected to remain around $9.4 billion in FY2022. Additionally, ICE’s adjusted net income margin is likely to normalize in the year, leading to an adjusted net income of $3.1 billion and an annual EPS of $5.62. This coupled with a P/E multiple of just below 27x will lead to the valuation of $151.
|S&P 500 Return||-3%||-8%||96%|
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 Month-to-date and year-to-date as of 4/25/2022
 Cumulative total returns since the end of 2016