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Intercontinental Rides on Solid Portfolio, Cost Woes Persist

Zacks Equity Research

Intercontinental Exchange ICE is poised for growth, banking on compelling portfolio, broad range of risk management services, achievement of cost synergies and solid capital position.

Intercontinental’s solid portfolio of products including trade execution, market data, and pre and post-trade processing and clearing services on an integrated platform should continue to drive revenues. The company estimates Data Services business revenues to grow in the range of $2.19-$2.24 billion while pricing and analytics, desktop and connectivity service, revenues are expected to grow about 7% in 2019.

The company boasts being the second-largest fixed income provider globally with over 5,000 indices, representing more than $1 trillion in benchmark assets under management.    

Intercontinental also has an impressive inorganic story that not only fuels growth but also leads to expense synergies. Management is on track with the targeted 2019 synergies of at least $30 million that will enable the company to attain its initial commitment of $180 million in synergies.

The company also has a solid capital management policy in place, banking on operational strength. The 15% rise in dividend in the first quarter of 2019 marks the fifth consecutive double-digit hike in dividend since its initiation in December 2013. It also pursues share buyback. A healthy and minimal risk-based balance sheet should continue to provide stability over the medium to long term.

The company has a solid history of beating estimates in the last four quarters with the average being 3.49%.

However, expenses related to product launches, technology upgrade as well as debt and integration are expected to rise. For 2019, adjusted operating expenses are projected at the low end of the $2.19-$2.21 billion range. Also, debt-to-equity ratio of nearly 40% is higher than the industry average of about 30% that induces higher interest expenses.

Other Stocks in the Sector

Some other stocks from the finance sector include Hallmark Financial Services HALL, Cboe Global Markets CBOE and Nasdaq NDAQ.

Cboe Global Markets operates as an options exchange in the United States through its subsidiaries. The company came up with average four-quarter positive surprise of 9.19%.

Nasdaq provides trading, clearing, marketplace technology, regulatory, securities listing, information, and public and private company services worldwide. The company came up with average four-quarter positive surprise of 1.92%.

Hallmark Financial underwrites markets, distributes and services property and casualty insurance products in the United States. The company came up with average four-quarter positive surprise of 97.50%.

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