Intercontinental Exchange Stock Is Likely To Beat Revenue Consensus In Q1

Intercontinental Exchange (NYSE: ICE) is scheduled to report its fiscal Q1 2021 results on Thursday, April 29. We expect Intercontinental Exchange to beat the consensus estimates for net revenues, while the earnings are likely to remain below expectations. ICE, one of the largest exchange operators and clearing houses in the world, managed to outperform the revenues and earnings estimates in each of the last two quarters. The company reported strong 2020 results, with higher U.S trading volumes leading to higher clearing & transaction fees. Further, its mortgage technology segment witnessed a more than 3x growth in the year – contributing 10% of the net revenues (Total Revenues less transaction-based expenses). We expect the same trend to drive the first-quarter FY2021 results as well.

Our forecast indicates that Intercontinental Exchange’s valuation is $132 per share, which is 9% above the current market price of around $121. Look at our interactive dashboard analysis on Intercontinental Exchange’s pre-earnings: What To Expect in Q1? for more details.

(1) Net revenues expected to be ahead of consensus estimates in Q1

Trefis estimates Intercontinental Exchange’s fiscal Q1 2021 net revenues to be $1.82 billion, 3% above the $1.77 billion consensus estimate. ICE’s total revenues of $8.2 billion for the full year 2020 were 26% ahead of the 2019 figure. This translated into net revenues of $6 billion – up 16% y-o-y, due to a jump in transaction-based expenses as a % of revenues from 20.5% to 26.8%. The growth in revenues was driven by a 33% growth in clearing & transaction fees due to higher U.S trading volumes. Further, its mortgage technology revenues of $595 million were 3.28x times more than the year-ago period. The boost was mainly due to the acquisition of mortgage tech firm ‘Ellie Mae ELLI ’ for $11 billion in September last year. We expect the same momentum to continue in the first quarter of FY2021.

ICE’s non-trading revenues are likely to continue their positive growth trajectory in FY2021. However, the clearing and transaction fee is likely to suffer as the unusually higher U.S trading volumes are expected to normalize in the subsequent quarters, with improvement in the economy. Overall, it will likely offset the growth in non-trading revenues to some extent, restricting ICE’s revenues to around $8.4 billion in FY2021. Our dashboard on Intercontinental Exchange’s revenues offers more details on the company’s segments.

2) EPS likely to miss the consensus estimates

Intercontinental Exchange’s Q1 2021 adjusted earnings per share is expected to be $1.22 per Trefis analysis, almost 6% below the consensus estimate of $1.30. The higher revenues translated into a growth of 8% y-o-y in the adjusted net income figure to $2.1 billion in 2020. This was despite a slight increase in operating expenses due to acquisition-related expenses. Overall, the EPS figure grew from $3.42 to $3.76. We expect the same trend to continue in the FY2021 Q1 results.

ICE’s net income margin is likely to see some drop in FY2021 due to higher operating expenses. Overall, this will restrict its EPS to around $3.10 in the current year.

(3) Stock price estimate 9% more than the current market price

Going by our Intercontinental Exchange’s valuation, with an EPS estimate of $3.10 and a P/E multiple of just above 42x in fiscal 2021, this translates into a price of $132, which 9% above the current market price of $121.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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