The Zacks Analyst Blog Highlights: NYSE Euronext, Bank of America, UBS AG, Nasdaq OMX Group and IntercontinentalExchange

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Aug 03, 2011, 09:30 ET

CHICAGO, Aug. 3, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include NYSE Euronext Inc. (NYSE: NYX), Bank of America Corp. (NYSE: BAC), UBS AG (NYSE: UBS), Nasdaq OMX Group Inc. (Nasdaq: NDAQ) and IntercontinentalExchange Inc. (NYSE: ICE).

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Here are highlights from Tuesday's Analyst Blog:

NYSE Beats but Plunges YoY

NYSE Euronext Inc.'s (NYSE: NYX) second quarter operating earnings per share of 61 cents came in a penny higher than the Zacks Consensus Estimate of 60 cents but lagged the 64 cents recorded in the year-ago quarter. Consequently, operating net income dipped 4% year over year to $160 million from $167 million in the year-ago quarter.

NYSE reported GAAP net income of $154 million or 59 cents per share as compared with $184 million or 70 cents per share in the prior-year quarter. These include the impact of pre-tax merger expenses and exit costs of $18 million versus $32 million reported in the year-ago quarter.

The quarter had also recorded net gain on disposal activities of $54 million. Besides, the merger expenses in the reported quarter included $12 million related to the proposed merger with Deutsche Boerse.

Gross revenues declined 12.0% year over year to $1.09 billion in the reported quarter. However, net revenues (defined as gross revenues less direct transaction costs consisting of Section 31 fees, liquidity payments and routing and clearing fees) were $661 million, inching up 1.0% from $654 million in the prior-year quarter and also exceeded the Zacks Consensus Estimate of $651 million.

The underperformance was primarily based on flattish market data revenue, transaction and clearing fees that plunged 20% year over year to $742 million. Whereas, revenue from derivatives that decreased 5.8% year over year to $213 million due to substantial decline in European average daily volumes.

Besides, revenue growth was injected by information service and technology solutions (up 14.0% year over year to $122 million), and cash trading and listings (up 1.9% year over year to $327 million) that were supported by favourable currency fluctuations and higher pricing although daily trading volumes dipped over prior-year quarter.

However, fixed operating expenses inched down 0.5% to $437 million from $439 million in the prior-year quarter. As of June 30, 2011, total headcount at NYSE was 2,988, marginally down from June 30, 2010 and down 1% from March 31, 2011. The effective tax rate was 26%, compared to 27% in the year-ago quarter and in line with the management's guidance for 2011.

Financial Update

As of June 30, 2011, NYSE's total debt declined $0.2 million from 2010 end to $2.2 billion, whereby the company also eliminated $0.2 billion of its short-term debt in commercial paper, leaving behind only long-term debt. At the end of the reported quarter, cash and cash equivalents, investments and other securities were $0.4 billion while net debt was $1.8 billion.

Total capital expenditure declined to $31 million from $70 million in the year-ago quarter. The company expended $67 million in the first half of 2011, which is in line with its guidance. As a result of strong growth in adjusted EBITDA, lower capital expenditures and continued deleveraging, NYSE's debt-to-EBITDA ratio improved to 1.7x from 2.2x recorded at the end of 2010, lowest level since the inception of NYSE in April 2007.

Outlook

For 2011, NYSE management had previously projected fixed operating expenses to be less than $1,650 million on a constant dollar and fixed portfolio basis, compared to expenses of $1,678 million in 2010. Presently, total capital expenditure is expected to be less than $200 million. The effective tax rate is expected to be 26% in 2011.

Business Update

During the reported quarter, NYSE completed the sale of a 52.8% equity interest in NYSE Amex Options to several leading order flow providers and market making firms: Bank of America Corp. (NYSE: BAC) and UBS AG (NYSE: UBS), among others. However, NYSE will still remain the largest single shareholder in the entity.

Dividend Update

Concurrently, the board of NYSE declared a regular quarterly dividend of 30 cents per share, which is payable on September 30, 2011, to the shareholders of record as on September 15, 2011.

Further, on June 30, 2011, NYSE paid a quarterly cash dividend of 30 cents to shareholders of record as on June 16, 2011.

Peer Take

NYSE's arch-rival Nasdaq OMX Group Inc.'s (Nasdaq: NDAQ) second quarter operating earnings per share of 62 cents came in a couple higher than the Zacks Consensus Estimate of 60 cents but modestly ahead of 52 cents in the prior-year quarter.

Besides, IntercontinentalExchange Inc. (NYSE: ICE) is scheduled to release its second quarter results before the market opens tomorrow.

Our Take

Results reflect reduced volumes in European and the U.S. cash and derivative trading and muted growth in market data although technology services supported the top line. Besides, both NYPC and NYSE Liffe U.S. are yet to pick up the required growth pace.

However, NYSE is benefiting from lower capital expenditure and various cost containment initiative that reduced NYSE's cost base by over $600 million since the merger with Euronext in 2007. These efforts have been translating into reduction in expenses, modest EBITDA growth and strong free cash flows.

They also aided efficiency with new initiatives taken to start new data centers as part of its long-term strategy. The IPO pipeline also remains strong through 2011.

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