[Updated 04/06/2021] Intercontinental Exchange Update
Having gained 72% since the March 23 lows of last year, at the current price near $115 per share, we believeIntercontinental Exchanges stock (NYSE: ICE) has achieved its near-term potential and is likely to trade sideways. Intercontinental Exchange, one of the largest exchange operators and clearing houses in the world, which also owns the New York Stock Exchange (NYSE), has seen its stock increase from $67 to $115 off the March 2020 bottom compared to the S&P 500 which gained almost 80% the stock is slightly behind the broader markets and is trading 15% above its pre-Covid-19 peak in February 2020. This is because investors are cautiously positive about the growth in its top-line driven by higher trading volumes, leading to higher clearing & transaction fees, which contributes around 56% of the total revenues (as per 2020 figures). Further, the company surpassed the consensus estimates for earnings and revenues in each of the last two quarters.
ICE has benefited from higher U.S. industry trading volumes due to market volatility in 2020 and the same trend dominated its fourth-quarter results. It reported net revenues (revenue less transaction-based expenses) of $1.6 billion up 29% y-o-y, mainly driven by growth in its total transaction and clearing fees. Similarly, its full-year 2020 net revenues of $6 billion were 16% higher than the 2019 figure. While the growth was primarily driven by a 33% jump in clearing & transaction fees, its mortgage technology revenues also saw an increase of more than 300% y-o-y to $595 million ICE acquired mortgage tech firm Ellie Mae for $11 billion in September last year.
The higher trading volumes in 2020 were due to the impact of the Covid-19 crisis and the economic slowdown. However, as more and more people receive the Covid-19 vaccine and the economic conditions improve, the unusually high volumes are likely to normalize in the subsequent quarters. This is likely to hurt the transaction-based revenues, partially offsetting the growth in mortgage technology and data services segments. Overall,Intercontinental Exchanges revenues are likely to touch $8.4 billion in FY2021. Additionally, ICEs P/E multiple changed from just below 22x in 2018 to close to 30x in 2020. While the companys P/E is around 30x now, which is the same as the 2020 level, there is not much scope for downside. Our dashboard What Factors Drove 53% Change In Intercontinental Exchange Stock Between 2018-End And Now?provides the key numbers behind our thinking.
[Updated 12/8/2020] Intercontinental Exchange Stock Has Limited Strength