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ICE (ICE) Up 0.4% Since Last Earnings Report: Can It Continue?

·4 min read

A month has gone by since the last earnings report for IntercontinentalExchange (ICE). Shares have added about 0.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Intercontinental Exchange Q4 Earnings Top, Dividend Up

Intercontinental Exchange reported fourth-quarter 2020 adjusted earnings per share of $1.13, which beat the Zacks Consensus Estimate of $1.09. Also, the bottom line improved 18.9% on a year-over-year basis.

The company witnessed persistent revenue growth driven by strong Exchanges, Fixed Income and Data Services, and Mortgage Technology.

Performance in Detail   

Intercontinental Exchange’s revenues of $1.7 billion increased 29% year over year on higher revenues from Exchanges, Fixed Income, and Data Services and Mortgage Technology. Moreover, the top line outpaced the Zacks Consensus Estimate of $1.6 billion.

Net revenues from Exchanges were $871 million, up 7% year over year, while Fixed Income and Data Services revenues were $450 million, which increased 3% year over year. Mortgage Technology revenues increased more than seven fold to $350 million.

Total operating expenses rose 31.8% year over year to $891 million, primarily due to higher compensation and benefits, professional services, acquisition-related transaction and integration costs, technology and communication expenses, rent and occupancy, along with selling, general and administrative expenses. Adjusted operating expenses were $712 million for the fourth quarter, up 24.9% from the year-ago figure.

Adjusted operating income improved 31.7% year over year to $959 million. Adjusted operating margin expanded 10 basis points (bps) from the year-ago quarter to 57%.

Exchanges' adjusted operating income of $582 million was up 7.8% year over year. Adjusted operating margin expanded 10 bps to 67%. Fixed Income and Data Services' adjusted operating income rose more than seven fold to $166 million and adjusted operating margin remained flat year over year at 37%. Mortgage Technology’s adjusted operating income of $582 million was up 2.1% year over year. Adjusted operating margin, however, contracted 10 bps to 60%.

Financial Update

As of Dec 31, 2020, Intercontinental Exchange had cash and cash equivalents of $1.6 billion, down 11.3% from the Dec 31, 2019 level. Long-term debt of $14.9 billion more than doubled from 2019-end level.

Total equity was $19.5 billion as of Dec 31, 2020, up 13% from 2019-end.

Operating cash flow was $2.9 billion for 2020, up 8% year over year. Free cash flow was $2.4 billion, up 4% year over year.

In 2020, the company bought back $1.2 billion worth shares and paid $669 million in dividends.

Full-Year Highlights

Adjusted earnings were $4.51 per share, up 16% year over year. The bottom line also beat the Zacks Consensus Estimate of $4.46.

Operating revenues of $6 billion for 2020 increased 16% year over year and marginally beat the consensus estimate.

This year marks the 15th consecutive year of record revenues and another year of double-digit earnings per share growth.

Adjusted operating margin was 59%, which expanded 10 bps.

Q1 Guidance

Operating expenses for first-quarter 2021 are projected in the range of $885-$895 million. Adjusted operating expenses are expected in the range of $720-$730 million.

Adjusted non-operating expense is expected in the range of $105-$110 million.

2021 View

Operating expenses are projected in the range of $3.465-$3.515 billion. Adjusted operating expenses are expected in the range of $2.83-$22.88 billion.

Weighted average shares outstanding are anticipated between 562 million and 568 million shares.

Capital expenditures are expected between $400 million and $430 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, ICE has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly 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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