RBC Capital Markets analyst Ashish Sabadra is bullish on Intercontinental Exchange Inc. (ICE), initiating coverage with an Outperform rating and a price target of $200. Sabadra sees significant growth potential for ICE, fueled by its diverse revenue streams, strategic positioning within key financial markets, and technological prowess in mortgage and data services.
The analyst expects ICE’s mortgage technology segment to experience double-digit growth, driven by synergies from the BKI acquisition and a recovering market. Additionally, Sabadra anticipates benefits from digitization in ICE Bonds and the shift to passive fixed-income investing in ICE Indices. This shift towards passive fixed-income investing, coupled with increased volatility in the energy sector, should drive higher demand for hedging, leading to sustained solid double-digit revenue growth for ICE.
Sabadra highlights the recession-resilient nature of ICE’s business model, which capitalizes on increased volatility and leverages strong franchises in mortgage origination and servicing, energy benchmarks, the NYSE, and fixed-income indices. He projects mid-single to high-single-digit (MSD-HSD) revenue growth from the mortgage sector, supported by strong sales momentum and an expanding implementation pipeline. Furthermore, he anticipates opportunities to upsell and cross-sell to the fixed-income customer base.
Looking at cost synergies and operating leverage, ICE forecasts approximately $200 million from BKI cost synergies by the fifth year post-acquisition. This, along with ongoing deleveraging and dividends yielding over 1%, is predicted to generate low teens-plus Total Shareholder Return (TSR) annually. Strategically, ICE plans to use its substantial Free Cash Flow (FCF) primarily for debt reduction in the coming quarters, aiming to lower its leverage ratio to around 3.0x. This aligns with their broader strategy to optimize the balance sheet while maintaining the capacity for shareholder returns and strategic acquisitions.
Investors seeking exposure to ICE can do so through the Listed Funds Trust Horizon Kinetics Blockchain Development ETF (BCDF) and the Tema ETF Trust Tema Monopolies and Oligopolies ETF (TOLL). ICE shares closed up 0.46% at $158.85 on Friday.
This analysis emphasizes the strong competitive stance of Intercontinental Exchange, driven by its diversified revenue streams, strategic positioning within key financial markets, and technological capabilities. ICE’s commitment to enhancing operational efficiencies and expanding its product offerings through strategic acquisitions like BKI positions the company for future growth and profitability.
