Is Intercontinental Exchange Stock Attractive At The Current Levels?

Intercontinental Exchange’s stock (NYSE: ICE) has lost roughly 30% YTD, as compared to the 19% drop in the S&P500 over the same period. The recent decline in the stock market was mainly due to high inflation numbers, aggressive interest rate hikes, and geopolitical tensions.

At the current price of $96 per share, ICE stock is trading 29% below its fair value of $134 – Trefis’ estimate for Intercontinental Exchange’s valuation. The company posted better than expected results in the first quarter of 2022. It reported total net revenues (revenue minus transaction-based expenses) of $1.9 billion – up 6% y-o-y. The exchange-based revenues increased 11% y-o-y, primarily due to an 11% drop in transaction-based expenses. Further, the fixed income and data services segment grew 9% y-o-y. On the flip side, the benefit from growth in the top line was partially offset by a decrease in other income (net), from $48 million to -$58 million. Overall, the adjusted net income improved only 2% y-o-y to $657 million in the quarter.

The firm recently released its second-quarter statistics, with total average daily volume (ADV) increasing by 12% y-o-y. It was mainly driven by a 17% rise in the U.S. cash equities ADV and a 25% growth in the equity options ADV. This will likely help the exchange-driven revenues in Q2. Similarly, the fixed income and data services unit is expected to continue its growth momentum. Altogether, the consensus estimates for Q2 revenues and earnings are $1.8 billion and $1.29 respectively.

The exchange has seen high trading volumes since 2020, due to market uncertainty. However, we expect the volumes to normalize over the subsequent quarters, with an improvement in the economy. Overall, Intercontinental Exchange revenues (total revenues) are forecast to remain around $9.54 billion in FY2022. Additionally, ICE’s adjusted net income margin is likely to decline from around 44% to 31% in the year, leading to an adjusted net income of $2.97 billion and an annual EPS of $5.37. This coupled with a P/E multiple of just below 25x will lead to the valuation of $134.

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