Intercontinental Exchange Stock Is Trading Below Its Fair Value

ICE: Intercontinental Exchange logo
Intercontinental Exchange

Intercontinental Exchange’s stock (NYSE: ICE) has gained roughly 4% YTD, as compared to the 6% rise in the S&P500 over the same period. Further, at the current price of $107 per share, ICE stock is trading 17% below its fair value of $129 – Trefis’ estimate for Intercontinental Exchange’s valuationThe company surpassed the consensus estimates in the first quarter of 2023. It posted net revenues (revenue minus transaction-based expenses) of $1.8 billion, which was at the same level as the year-ago period. The fixed income and data services revenues increased 11% y-o-y, followed by a 1% improvement in the exchange net revenues. Notably, the exchange segment contributes close to 60% of the top line. While ICE’s total contract volume in the futures and options category increased 4% y-o-y, it was offset by a decline in rate-per-contract. That said, the mortgage technology revenues decreased 23% in the quarter, eroding the positive impact of growth in other units. Overall, adjusted net income of $655 million was at par with the previous year’s figure.

The net revenues grew 2% y-o-y to $7.3 billion in FY2022. It was driven by an 11% rise in fixed income & data services unit, followed by a 6% increase in exchange segment net revenues. The exchange division primarily benefited from higher cash equities and equity options revenues. On the flip side, the mortgage technology business witnessed a 20% y-o-y decrease in the year. Further, other income decreased from $2.25 billion to -$1.83 billion. Altogether, the adjusted net income was reduced by 64% y-o-y to $1.4 billion.

Moving forward, we expect Intercontinental Exchange revenues (total revenues) to touch $10.1 billion in FY2023, translating into net revenues of around $7.6 billion. Additionally, ICE’s adjusted net income margin is likely to see a slight dip in the year, leading to an an annual GAAP EPS of $2.67. This coupled with a P/E multiple of just above 48x will lead to a valuation of $129.

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 Returns May 2023
MTD [1]
YTD [1]
Total [2]
 ICE Return -2% 4% 89%
 S&P 500 Return -3% 6% 81%
 Trefis Multi-Strategy Portfolio -3% 6% 232%

[1] Month-to-date and year-to-date as of 5/5/2023
[2] Cumulative total returns since the end of 2016

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