Intercontinental Exchange Stock Gained 22% YTD, What’s Next?

Intercontinental Exchange’s stock (NYSE: ICE) has gained 22% YTD, as compared to the 14% rise in the S&P500 over the same period. In sharp contrast, Intercontinental Exchange’s peer CME Group (NASDAQ: CME) has given near-zero returns YTD. Overall, at the current price of $156 per share, ICE stock is trading 6% below its fair value of $166 – Trefis’ estimate for Intercontinental Exchange’s valuation. 

Amid the current financial backdrop, ICE stock has seen extremely strong gains of 40% from levels of $110 in early January 2021 to around $155 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in ICE stock has been far from consistent. Returns for the stock were 20% in 2021, -24% in 2022, and 27% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that ICE underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ICE face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company surpassed the street estimates in the second quarter of FY 2024. It reported net revenues (revenue minus transaction-based expenses) of $2.32 billion – up 23% y-o-y. The increase was mainly due to a 14% rise in the exchanges’ (including transaction & clearing, data & connectivity services, and listings) revenues and a more than 100% jump in the mortgage technology segment. On the cost front, the operating expenses increased 34% y-o-y in the quarter, hurting the bottom line. Overall, the adjusted net income declined 21% y-o-y to $632 million.

The net revenues grew 22% y-o-y to $4.6 billion in the first half of FY2024. This was primarily because of a 13% growth in the exchanges division and a 107% rise in mortgage technology revenues. That said, the operating expenses as a % of revenues witnessed an unfavorable increase, leading to a drop in operating margin from 51% to 46%. Altogether, the net income decreased 4% y-o-y to $1.4 billion.

Moving forward, we expect the same trend to continue in Q3. Overall, Intercontinental Exchange revenues (total revenues) are forecast to touch $11.49 billion in FY2024, translating into net revenues of around $9.26 billion. Additionally, ICE’s adjusted net income is likely to remain around $3.35 billion, leading to an annual GAAP EPS of $6.04. This coupled with a P/E multiple of just below 28x will lead to a valuation of $166.

[1] Returns as of 8/15/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates