Intercontinental Exchange Poised For Breakout, Goldman Sachs Says: What's Behind 22% Upside Projection?

Intercontinental Exchange Inc. ICE is ready to sizzle, riding a wave of structural tailwinds and cyclical recoveries that promise substantial gains. As a key player in the financial and commodities markets, the exchange promises an exciting growth trajectory that investors won't want to miss.

Goldman Sachs Upgrade: A Strong Buy

Goldman Sachs‘ analyst Alexander Blostein has upgraded Intercontinental stock to a Buy from Neutral, setting a 12-month price target of $167, indicating a potential 22% upside from a price of $136.89.

Anticipated earnings per share (EPS) growth backs this optimistic forecast. After experiencing less than 10% EPS growth over the past three years, Blostein expects Intercontinental’s EPS to climb into the low teens by 2025 and beyond.

Energy Markets: Driving Force Behind Growth

Blostein expects the energy market to fuel over 25% revenue growth for the exchange in 2024, with an estimated 8%-10% growth in subsequent years. The market alone, account for about 30% of Intercontinental's earnings.

Intercontinental's robust performance in energy is driven by the globalization of natural gas and LNG and a broadening customer base. The firm's success with new products and a favorable revenue per contract (RPC) mix shift are further enhancing its growth.

A 30% increase in open interest across oil and natural gas has driven Intercontinental stock's recent gains, noted Blostein. This indicates strong product adoption even amid lower energy volatility.

AI-driven demand for power should provide additional tailwinds over the long-term to the exchange's natural gas growth strategy.

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Promising Signs – Fixed Income, Mortgage Segments

Blostein also highlights promising developments in the company's fixed-income data and analytics segment, which makes up about 22% of its earnings. The firm's annual subscription value (ASV) is recovering and flows into fixed-income funds are rebounding year-to-date, signaling accelerated growth in this area.

The mortgage technology segment, accounting for 16% of earnings, is emerging from a “cyclical trough”. With origination activity stabilizing and Intercontinental's organic initiatives gaining momentum, Blostein anticipates high single-digit to low double-digit revenue growth in 2025 and 2026.

Up Ahead – Margin Expansion, Share Repurchases

Bolstein expects Intercontinental's high-margin exchange revenues to support an approximate 100 basis point annual expansion in operating margins.

Coupled with strong free cash flow conversion, this is likely to speed up de-leveraging and bolster share repurchases by the end of 2024.

A Compelling Investment Opportunity

Intercontinental’s strategic position and growth prospects make it a compelling buy for investors looking to capitalize on the upcoming surge.

Overall, Intercontinental Exchange appears set to deliver substantial returns, on the back of:

• Structural tailwinds in energy,
• Recovery in fixed income and
• Stabilization in mortgage technology.

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