Securities exchanges gain from increased market volatility that boosts trading volumes. The companies largely generate their revenues from trade execution, clearing, settlement services for securities and commodity contracts, listing services plus trading and clearing systems services.
The industry has lost 2.1% year to date compared with the Zacks S&P 500 composite’s decrease of 5.7% and the Finance sector’s decrease of 20.9%. Also, it carries a Zacks Industry Rank #12, which places it in the top 5% of 253 Zacks industries. Year to date, the industry’s earnings estimates for 2020 has moved 5.9% higher.
Industry players are continuously contemplating strategic mergers and acquisitions to diversify and add capabilities that enhance the value of their platform and the existing trade-related operations, apart from penetrating untapped markets. This, in turn, helps industry participants to maintain their domestic market share as well as fortify global footprint.
Here we focus on two securities exchanges, namely Intercontinental Exchange Inc. ICE and CME Group Inc. CME
While Intercontinental is a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets, CME Group is the largest futures exchange in the world in terms of trading volume as well as notional value traded. Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these exchanges have fared in terms of some of the key metrics.
Intercontinental has outperformed both CME Group and the industry year to date. While shares of Intercontinental have gained 2.5%, CME Group has lost 10.1%.
Return on Equity (ROE)
Intercontinental with a return on equity of 13.8% exceeded CME Group’s ROE of 10.2% and the industry average of 12.2%.
Price to earnings is the best multiple used for valuing exchanges. Compared with the industry’s P/E ratio of 23.5 and CME Group’s ratio of 23.6, Intercontinental with a reading of 20.9 is undervalued. Intercontinental with a lower valuation multiple is thus cheaper.
CME Group with dividend yield of 1.9% betters Intercontinental’s 1.3% as well as the industry’s average of 1.5%. CME Group thus has an edge over Intercontinental.
CME Group’s debt-to-equity ratio of 13.3 is lower than the industry average of 24.5 and Intercontinental’s reading of 32.6.
Earnings Surprise History
Intercontinental outpaced expectations in each of the last four quarters, delivering average positive surprise of 4.46% while CME Group surpassed estimates in three of the last four trailing quarters with average positive surprise of 3.08%.
For Intercontinental, the Zacks Consensus Estimate for earnings per share is pegged at $4.49 for 2020 and $4.63 for 2021, indicating year-over-year increase of 15.7% and 3.2% respectively. The expected long-term earnings growth rate is 8.1%, better than the industry average of 6.5%
For CME Group, the Zacks Consensus Estimate for earnings per share is $7.73 for 2020, implying year-over-year increase of 13.7%. However, the Zacks Consensus Estimate for 2021 earnings of $7.50 indicates 2.9% year-over-year decrease. The expected long-term earnings growth rate is 5.4%, lower than the industry average of 6.5%
Intercontinental scores better than CME Group.
Our comparative analysis shows that Intercontinental has an edge over CME Group with respect to price performance, return on equity, valuation, earnings surprise history and growth projections. Meanwhile, CME Group has an edge in terms of leverage and dividend yield.
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Intercontinental Exchange Inc. (ICE) : Free Stock Analysis Report
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