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ICE or CME: Which Securities & Exchanges Stock Has an Edge?

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The Zacks Securities and Exchanges industry is poised to gain from increased volatility that drives transactions and hence volumes. Thus, the players should benefit from higher trading volumes, product expansion, and increased adoption of a greater number of crypto assets with increased interest across the entire cryptoeconomy.

The industry has gained 17.3% year to date, compared with the Finance sector’s rise of 20.4% and the Zacks S&P 500 composite’s rally of 21.7%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

The industry players facilitate trading across a diverse range of products in multiple asset classes through electronic marketplaces. Thus, they strive to maintain a compelling and diversified product portfolio that fuels transaction and clearing fees, a major component of the top line of the companies.

These players are also intensifying focus on ramping up non-trading revenue base, which includes market technology, listing and information revenues, thus infusing dynamism in business profile.

The adoption of technological advancements to improve trading decisions while reducing trading inefficiencies, cyber threats and human errors bodes well for operational efficiency. The adoption of technology should lower transaction-based expenses and drive profits.

The industry participants are continually pursuing strategic mergers and acquisitions to penetrate untapped markets, provide new products or services and enhance the value of their platform and the existing trade-related operations to increase domestic market share as well as expand globally.

The industry’s earnings estimate for 2021 has moved 24.7% higher over the past eight months, reflecting analysts’ optimism surrounding the industry’s performance.

Here we focus on two players from the industry – CME Group Inc. CME and Intercontinental Exchange, Inc. ICE with a market capitalization of $69.9 billion and $67.4 billion, respectively. Both carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Before putting them on the weighing scale, let’s see what strategies they follow to drive growth.

CME Group boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Its efforts to expand futures products in emerging markets, non-transaction related opportunities, OTC offerings, cross-sell through alliances, strong global presence, and solid liquidity should drive growth.

This year, CME Group has already migrated BrokerTec to U.S. Treasury benchmarks trading and EU government bond and repo markets onto Globex. It is also progressing well with the integration of business into Globex and is on track with the achievement of expense synergies. It aims $200 million run-rate synergies by the end of 2021. Also, the company mentioned the extension of the exclusive NASDAQ futures license through 2029, which will provide it seamless access to the NASDAQ product suite to its clients.

On the other hand, Intercontinental Exchange is a leading global operator of regulated exchanges, clearing houses, and listings venues, and a provider of data services for commodity, financial, fixed income, and equity markets. Its compelling portfolio, a broad range of risk management services, and solid capital position strengthen its growth trajectory.

The company is poised to benefit from accelerated digitization taking place in the US residential mortgage industry. Last September, it bought mortgage-software firm Ellie Mae to boost its mortgage business and execute well in a $10 billion addressable market. The buyout will also help realize run-rate cost synergies of $50 million to $65 million by the end of the third year. Continued strength in the pricing and analytics business should boost its data revenues.

Price Performance

CME Group has gained 6.4% year to date while Intercontinental Exchange has gained 3.8% over the same time frame. CME Group thus has an edge over Intercontinental Exchange in this respect.

Return on Equity (ROE)

Intercontinental Exchange with a return on equity of 13.2% exceeds CME Group’s ROE of 8.3% and the industry average of 12.8%.

Dividend Yield

Intercontinental Exchange dividend yield of 1.9% tops CME Group’s 1.1% as well as the industry’s average of 1%.


CME Group’s debt-to-equity ratio of 12.9 is lower than the industry average of 50.6 as well as Intercontinental Exchange’s reading of 66.9.

Earnings Surprise History

Intercontinental Exchange outpaced expectations in three of the four trailing quarters, delivering an earnings surprise of 2.70%, on average. CME Group surpassed estimates in three of the last four reported quarters, with the average surprise being 1.57%.

Growth Projection

Intercontinental Exchange’s earnings are expected to grow 8.2% in the current year. Comparatively, CME Group’s earnings are expected to decline 1% over the same time frame. Hence, Intercontinental Exchange’s higher growth rate implies a greater potential for capital appreciation.

Bottom Line

Intercontinental Exchange appears to be comparatively better positioned than CME Group in terms of ROE, dividend yield, earnings surprise history, and growth projection. However, CME Group holds an advantage when it comes to price performance and leverage.

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CME Group Inc. (CME) : Free Stock Analysis Report

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