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

+7.52%
Upside
155
Market
166
Trefis
ICE: Intercontinental Exchange logo
ICE
Intercontinental Exchange

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.

Relevant Articles
  1. Intercontinental Exchange Stock Gained 15% YTD, What’s Next?
  2. Up 24% Since The Start Of 2023, What To Expect From Intercontinental Exchange Stock After Q4 Results?
  3. Up 7% In The Last One Month, Where Is Intercontinental Exchange Stock Headed?
  4. Where Is Intercontinental Exchange Stock Headed?
  5. Intercontinental Exchange Stock Is Trading Below Its Fair Value
  6. Intercontinental Exchange Stock To Edge Past the Expectations In Q4

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.

 Returns Aug 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 ICE Return 3% 22% 205%
 S&P 500 Return -2% 14% 143%
 Trefis Reinforced Value Portfolio 2% 9% 709%

[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