Intercontinental Exchange Set To Grow Despite Challenges

On Aug 17, 2016, we issued an updated research report on Intercontinental Exchange Group Inc. (NYSE:ICE) .

Intercontinental Exchange delivered record second-quarter operating earnings per share that beat the Zacks Consensus Estimate and improved year over year on growth across the trading and clearing, and data and listings business segments. This also marked the seventh straight quarter of double-digit earnings growth.

Given the outperformance, the Zacks Consensus Estimate moved up 0.3% to $13.95 for 2016 and 1% to $15.62 for 2017 as some of the estimates moved north in the last 30 days.

ICE has been a premier stock trading platform since it became the second-largest global exchange group following its acquisition of NYSE. The company remains focused on cost control and thus management projects run-rate expense synergies of about $550 million by first-quarter 2017. Cost savings are also expected to expand margins to about 60% by 2016 end.

The company now expects adjusted operating expenses in the range of $1.94–$1.97 billion for 2016. The guidance includes $85–$90 million in synergies, about one-third of the total expense reduction the company, estimated to be delivered over the next three years. For third-quarter 2016, it is estimated between $485 million and $495 million.

Its inorganic story remains impressive with strategic acquisitions. For 2016, the company now estimates $50 million in synergies from Interactive Data acquisition.

ICE possesses a strong balance sheet with strong cash, receivables and capital position. Riding on its operational strength, ICE generated record operating cash flow of $1.1 billion in the first half of 2016. This helps the company to engage in shareholder-friendly moves.

However, low interest rates and demand for low-priced products are concerns. Also, stiff competition and challenging regulations pose as headwinds for the company.

Stocks to Consider

Currently, ICE carries a Zacks Rank #3 (Hold). Some better-ranked securities exchanges are CME Group (NASDAQ:CME) , MarketAxess Holdings Inc. (NASDAQ:MKTX) and Bats Global Markets (NYSE:BATS) . While MarketAxess sports a Zacks Rank #1 (Strong Buy), CME Group and Bats Global Markets carry a Zacks Rank #2 (Buy).