Sep 24, 2020
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Intercontinental Exchange Stock Is Quite Expensive

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BRAZIL – 2020/05/25: During this photo illustration an Intercontinental Exchange ICE logo seen. [+] SOPA IMAGES/LIGHTROCKET VIA GETTY IMAGES After a 50% rise since the March 23 lows of this year on the current price of around $100 per share we believe Intercontinental Exchange s stock (NYSE: ICE) looks fully valued based on its historic P/E multiples

 

Intercontinental Exchange among the largest exchange operators and clearing houses on the earth has seen its stock rally from $67 to $101 off the recent bottom when compared with the S&P which also moved around 50%. Its stock is in sync with the S&P 500 index as the corporate has profited from higher trading volumes within the securities market with the aid of the Covid-19 crisis

 

Notably its revenues grew by 7% y-o-y in the second quarter mainly driven by 33% growth in total transaction and clearing revenues. Further its stock continues to be 10% above the degrees seen in late 2019. Intercontinental Exchange s stock has bested the extent it was at before the drop in February with the aid of the coronavirus outbreak becoming a pandemic

 

This seems to make it fully valued as honestly trading volumes within the securities market are more likely to normalize over the next few months. A few of the rise of the last 3 years is justified by the roughly 15% growth seen in Intercontinental Exchange s revenues (revenue minus transaction-based expenses) from 2016 to 2019 which translated right into a 35% growth in Net Income

 

The Net income figure was higher in 2017 with the aid of the one-time effect of the U. S Tax Act. While the corporate has had stable revenue and earnings growth over recent years its P/E multiple has seen some increase. We believe the stock is unlikely to work out an upside after the recent rally and the potential weakness from a recession-driven by the Covid outbreak

 

Our dashboard Why Intercontinental Exchange Stock moved 88% between 2016 and now has the underlying numbers. PROMOTED Civic Nation BRANDVOICE | Paid Program
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#WhatsWorking: How To Build A More Just And Equitable Economy The Ideas Are Flowing Intercontinental Exchange s P/E multiple has changed from just above 22x in 2016 to about 27x in 2019

 

While the corporate s P/E is around 29x now there is a downside risk when the current P/E is when compared with levels seen in the past years – P/E of almost 27x on the end of 2019 and around 22x as recently as late 2016. So what s the likely trigger and timing for the downside? Intercontinental Exchange owns exchanges for financial and commodity markets

 

It generates greater than 62% of its revenues from Transaction and Clearing Fees that are charged on a per-transaction basis for trading in derivatives cash equities fixed income equity options etc. The Covid-19 crisis and economic uncertainty have led to high market volatility resulting in a significant jump in trading volumes

 

This in turn signifies that the exchange would generate more revenue when it comes to transaction and clearing fees. However as the economic condition improves within the coming months market volatility is more likely to decline normalizing the trading volumes. This implies that the Intercontinental Exchange s revenue growth rate is more likely to decrease in Q3 on a sequential basis

 

Additionally over the coming weeks we expect continued improvement fashionable and subdued growth within the number of new Covid-19 cases in the united states to buoy market expectations. Following the Fed stimulus — which helped to set a floor on fear — the market has been willing to leaf through the current weak period and take a longer-term view with investors now mainly focusing their attention on 2021 results

 

Though market sentiment might be fickle and evidence of a sustained uptick in new cases could spook investors once again. What in case you re looking for a more balanced portfolio instead? Here s a good quality portfolio to overcome the market with over 100% return since 2016 versus 55% for the S&P 500

 

Produced from companies with strong revenue growth healthy profits plenty of cash and occasional risk it has outperformed the broader market year after year consistently. See all Trefis Price Estimates and Download Trefis Data here What s behind Trefis? See How It s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product R&D and Marketing Teams

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