Intercontinental Exchange Gets Back To Business; Goldman Now Buying The Stock

Goldman Sachs has reinstated Intercontinental Exchange Inc (NYSE: ICE) with Buy rating. The firm also added Intercontinental Exchange to its Buy List (on the Americas Conviction List) with a price target of $305, implying 20 percent upside.

"We view ICE as one of the strongest EPS growth stories in Capital Markets, with a 12 percent EPS CAGR through 2018E amid growth in Data Services, cost synergies and buybacks," analyst Alexander Blostein wrote in a note.

Blostein sees a "structural re-rating case for ICE," as the exchange operator now gets more than "50 percent of its earnings from the recurring, higher-valued Data/Listings business, rising capital returns and deal discipline," which the analyst believes is not reflected in the stock's current 16X 2017E P/E.

Related Link: Intercontinental Exchange Doesn't Have Any Plan To Make An Offer for London Stock Exchange

The analyst sees 2016/17/18 EPS at $14.20/$16.00/$17.80, implying an average of 5 percent above consensus.

In addition, Blostein expects Intercontinental Exchange's costs to be down over the next two years, thereby boosting operating margins to 62 percent in 2018 from 51 percent in 2015.

"We think management's 2016 cost guide of $1.97 billion–$2.0 billion is conservative, creating potential margin upside," the analyst noted.

On the capital returns front, Blostein expects ICE to resume buybacks in the first quarter of 2017. The analyst estimates around $1 billion in share repurchases in 2017 and closer to $1.5 billion in 2018 – "roughly 3–5 percent of ICE's current market cap per year."

According to TipRanks, Blostein has a success rate of 65 percent, with an average return per recommendation of +4.7 percent. The analyst is ranked 938 out of 3,899 analysts.

At time of writing, Intercontinental Exchange was trading up 1.68 percent at $258.28.