NYSE EuroNext Trumps Earnings Estimates

NYSE Euronext NYX reported 3Q10 operating EPS of $0.46, ahead of consensus of $0.43. Upside relative to our $0.40 estimate was driven by ongoing cost controls and a lower tax rate in Europe, although a depreciating USD prompted NYX to raise 2010 operating expense guidance by about 1% to $1.707-$1.749 bn from $1.685-$1.729 bn, which assumes EUR/USD of $1.34 and GBP/USD of $1.55. The quarter highlighted what NYX is doing well and what it is focused on to deliver growth. Positively, expense management remains a focus, as the total expense of $419 mn was down $26 mn yoy on a constant currency/constant portfolio basis. NYX reiterated 2011 expenses would be below $1.65 bn, while it raised its 2010 expense estimate owing to F/X impact, and thus despite the lower 3Q levels Goldman Sachs tweaks its 4Q expense forecast up to $434 mn. NYX trades at 15X our new 2010 estimate. Goldman's 12-month price target of $33 is based on 13X 2011E EPS from 12.5X prior, in line with peer multiple expansion. Upside risks include lower expenses and better volumes. Downside risks include margin compression, increased competition, or weaker revenues. NYX closed Tuesday at $29.61