Intercontinental Exchange (NYSE:ICE) A Bull Case Thesis

We came across a bullish thesis on Intercontinental Exchange (ICE) on ValueInvestorsClub by Par03. VIC is our preferred site because the ideas there are generally posted by aspiring analysts who produce quality research. We find the ideas presented on the site well thought out and worthy of a serious consideration. Click here for the full article. Below we summarized the ICE bullish thesis. ICE shares were trading at $100 when this thesis was published.

“The Intercontinental Exchange is an American Fortune 500 company formed in 2000 that operates global exchanges, clearing houses and provides mortgage technology, data and listing services. The company owns exchanges for financial and commodity markets, and operates 12 regulated exchanges and marketplaces.” – Wikipedia

With nearly half of their net revenues coming from transactions & clearing business, and half from the more reliable activities such as listing and market data, ICE is the world’s second largest derivatives exchange operator, after CME (Chicago Mercantile Exchange).

The recently announced acquisition of Ellie Mae – a dominant U.S mortgage application processor software company with 44% market share – is highly accretive to ICE’s earnings. With its market share growing from 38% to 44% over the past couple of years, Ellie Mae’s has seen its revenue register a double-digit growth over the same period. ICE expects Ellie Mae to maintain this growth pattern for the foreseeable future.

With half of its revenue derived from transactions and clearing segment, which oscillates with change in the derivatives volumes, ICE’s stock also goes through a roller coaster ride to reflect the changes. During the heightened activity periods of derivatives, the stock reflects the positive outlook by street analysts, and does exactly the opposite of that during the dull periods. At the time of writing the original article, the trading volumes were low, and the stock was printing low multiples while underperforming the Russel 3000. And, like most investments, there is always a sweet spot to enter a stock. And, for an exchange operator, what better time than the sluggish trading activity period when volume drop, and so does the stock price.

ICE is the industry leader and has strong balance sheet. It has compounded earnings at a CAGR of 16% over the past six years. With acquisition of Ellie Mae expected to grow parent company’s multiples, ICE is a buy here.