Why Is ICE (ICE) Up 4.4% Since Last Earnings Report?

A month has gone by since the last earnings report for IntercontinentalExchange (ICE). Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ICE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Intercontinental Exchange Earnings Meet Estimates in Q4

Intercontinental Exchange reported fourth-quarter 2019 adjusted earnings per share of 95 cents, in line with the Zacks Consensus Estimate. Meanwhile, the bottom line inched up 1.1% on a year-over-year basis. However, the company witnessed lower revenues and higher expenses in the quarter under review.

Performance in Detail

Intercontinental Exchange’s revenues of $1.3 billion dipped 0.8% year over year, mainly due to lower transaction and clearing. The top line also missed the Zacks Consensus Estimate by 0.2%. Net revenues of Trading and Clearing segment were $626 million, down 5% year over year while Data and Listings revenues were $672 million, up 3% year over year. Total operating expenses rose 7% year over year to $676 million, primarily due to higher compensation and benefits, technology and communication, and depreciation and amortization. Adjusted operating expenses were $570 million in the third quarter, up 3.1% from the year-ago figure.

Adjusted operating income slipped 3.6% year over year to $728 million.

Adjusted operating margin contracted 200 basis points (bps) from the year-ago quarter to 56%.

Trading and Clearing's adjusted operating income of $380 million was down 10.6% year over year. Adjusted operating margin contracted 400 bps to 61%.

Data and Listings' adjusted operating income rose 5.5% year over year to $348 million and adjusted operating margin of 52% expanded 100 bps.

Total Futures & Options came in at 5.2 million contracts, down 17% year over year. Revenue per contract of $1.14 increased 14% year over year.

Financial Update

As of Dec 31, 2019, Intercontinental Exchange had cash and cash equivalents of $841 million, up 16.2% from the level as of Dec 31, 2018. Long-term debt of $5.2 billion was down 19% from the level at 2018 end. Total equity was $17.2 billion as of Dec 31, 2019, up 0.3% from the level as of Dec 31, 2018. Operating cash flow was $2.7 billion in 2019, up 5% year over year. Free cash flow was $2.3 billion, up 1.5% year over year.

Share Repurchase and Dividend Update

In 2019, the company bought back shares worth $1.5 billion and paid out dividends amounting to $621 million. The company also took up a new share repurchase plan of $2.4 billion, effective Jan 1, 2020.

Q1 Guidance

Following fourth-quarter results, the company issued its first-quarter and 2020 outlook. For the first quarter of 2020, the company expects its data revenues to be $560-$565 million while operating expenses are projected in the range of $570-$580 million.

2020 Guidance

Data revenues are estimated between $2.29 billion and $2.33 billion. Operating expenses are predicted in the $2.275-$2.325 billion band.

Full-Year Update

For 2019, net revenues were $5.2 billion, up 4% year over year. Adjusted operating expenses for the year were $2.2 billion, up 5.7% year over year.
The company’s adjusted EPS for the period was $3.88, up 8% year over year.
Adjusted operating income for the full year was $3 billion, up 3.6% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, ICE has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ICE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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