Global exchange operator – Intercontinental Exchange Inc. (ICE) – is scheduled to release third-quarter 2014 financial results before the opening bell on Nov 4.
In the last reported quarter, the company delivered positive earnings surprise of 4.0%, while the four-quarter trailing average also beat is pegged at 4.0%. Let us see how things are shaping up for this announcement.
Why a Likely Positive Earnings Surprise?
Our proven model shows that ICE is likely to beat earnings as it has the required combination of two key components.
Zacks ESP: ICE has a positive Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of $2.03 per share and the Zacks Consensus Estimate of $2.00, is +1.50%.
Zacks Rank: ICE has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings.
Sell-rated stocks (#4 and 5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum.
The combination of ICE’s Zacks Rank #3 and +1.50% ESP makes us confident of an earnings beat this season.
Factors Indicating Better-Than-Expected Earnings
The successful integration of NYSE in the first nine months of 2014, along with the timely achievement of cost synergies have not only improved prospects of enhancing operating leverage but also scored well with ratings agencies. Moreover, ICE also appears on track to boost fundamentals and cash flow as well as help expand margins to about 60% or more by 2016-end against about 50% in first-half 2014.
Additionally, ICE lays emphasis on prudent enterprise risk management through steady reduction in debt and operating costs. Furthermore, elimination of non-core and redundant operations have aided debt reduction and raised financial flexibility, thereby making way for efficient capital deployment via share buybacks and dividend payouts. It has also facilitated investment instrategic acquisitions and alliances. At Jun 2014-end, total debt was reduced to $3.9 billion from $5.1 billion at 2013-end, thereby improving financial leverage to 1.5x from the peak of over 3.0x.The company is expected to maintain this level in the coming quarters.
While ICE is expanding in the clearing and technology businesses, risks from persistently weak trading volumes is a lingering concern as these are still major contributors to the top line. Average daily volumes in total futures and options were down 17% year over year in the first nine months of 2014, while total contracts declined 14% in the third quarter. Volumes at NYSE also remained sluggish. Stiff competition, currency fluctuations and challenging regulations are other laggards for this transatlantic exchange.
Other Stocks to Consider
Here are some other financial companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Kemper Corp. (KMPR) has Earnings ESP of +13.33% and a Zacks Rank #2 (Buy).
Burger King Worldwide Inc. (BKW) has Earnings ESP of +3.70% and a Zacks Rank #2.
Loews Corp. (L) has Earnings ESP of +10.45% and a Zacks Rank #3.
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