ICE (ICE) Up 8.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for IntercontinentalExchange (ICE). Shares have added about 8.7% 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 Q1 Earnings Beat Estimates

Intercontinental Exchange reported first-quarter 2020 adjusted earnings per share of $1.28 per share, which exceeded the Zacks Consensus Estimate of $1.23. The bottom line improved 39% on a year-over-year basis.

The quarter witnessed record revenues, record operating income and double-digit earnings per share growth.

Performance in Detail

Intercontinental Exchange’s revenues of $1.6 billion improved 62% year over year, driven by increased revenues at Trading and Clearing as well as Data and Listings. The top line marginally beat the Zacks Consensus Estimate.

Net revenues of Trading and Clearing segment were $66 million, up 52 % year over year while Data and Listings revenues were $883 million, up 69% year over year.

Total operating expenses rose 11.9% year over year to $677 million, primarily due to higher compensation and benefits, professional services, technology and communication, selling, general and administrative and depreciation and amortization. Adjusted operating expenses were $597 million in the first quarter, up 13.1% from the year-ago figure.

Adjusted operating income improved 29.6% year over year to $962 million. Adjusted operating margin expanded 400 basis points (bps) from the year-ago quarter to 62%.

Trading and Clearing's adjusted operating income of $608 million was up 49% year over year. Adjusted operating margin expanded 200 bps to 69%.

Data and Listings' adjusted operating income rose about 6% year over year to $354 million and adjusted operating margin of 52% expanded 100 bps.

Total Futures & Options ADV came in at 8 million contracts, down 17% year over year. Revenue per contract of $1.11 increased 4% year over year.

Financial Update

As of Mar 30, 2020 Intercontinental Exchange had cash and cash equivalents of $1582 million, down from $1784 million as of Dec 31, 2019. Long-term debt of $5.3 billion was up 0.03% from the level at 2019 end. Total equity was $17 billion as of Mar 30, 2020, down 1.9% from the level as of Dec 31, 2019.

Operating cash flow was $520 million in the quarter, down 20.5% year over year. Free cash flow was $434 million, down 30.4% year over year.

Share Repurchase and Dividend Update

In the first quarter of 2020, Intercontinental Exchange bought back shares worth $699 million and paid out $166 million in dividends.

The board of directors approved second quarter dividend of 30 cents per share, up 9% from 27.5 cents per share dividend paid out in the second quarter of 2019. The cash dividend will be paid out on Jun 30, 2020 to shareholders of record as of Jun 16.

Guidance

Q2

For the second quarter of 2020, the company expects its data revenues to be $565-$570 million while adjusted operating expenses are expected to be in the range of $575 million to $585 million.

2020

GAAP operating expenses are expected to be in the range of $2.607 billion to $2.657 billion while adjusted operating expenses are expected to be in the range of $2.32 billion to $2.37 billion.

Capital expenditures are expected to be in the range of $300 million to $330 million.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months.

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 D on the value side, putting it in the bottom 40% 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

ICE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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