Analysts Duel on Intercontinental Exchange (ICE)

CONTRIBUTOR http://notablecalls.blogspot.com

Couple of conflicting notes on Intercontinental Exchange (NYSE: ICE)

- Wachovia is downgrading shares of ICE stock to Market Perform from Outperform rated. Firm believes that the stock is now adequately priced versus being undervalued when they first launched coverage of the company on November 26th.

While they are not calling for a reversal of the positive fundamental trends, they believe that the stock is priced with high expectations which could disappoint and lead the stock down in the near term. Wachovia believes that investors have priced the stock for immediate high volume enhancement of NYBOT and continued hyper growth in the OTC business. Thus it is difficult for them to recommend investors invest fresh capital into the story at these levels.

Firm is raising their 2007 and 2008 estimates to $3.37 and $4.50 per share to account for full accretion of the NYBOT deal and also more robust oil futures trading. They believe the shares should trade between $135-140, or 29-30x 2008 earnings estimate.

- Goldman Sachs believes the market continues to underestimate the growth potential in ICE's volumes and see 28% of upside in the shares to firm's new DCF-derived 12-month price target of $165 (30x '08E EPS). They expect the electronification of the NYMEX, ICE OTC, and NYBOT markets to continue to drive upside to volume estimates and propel strong year-over-year growth. GS' new 2008 EPS of $5.50 is 43% above consensus and 10% above the next highest estimate. They believe the risk reward trade-off remains favorable on ICE with a 2:1 ratio of upside to downside based on bull case 2008 EPS of $7.00 and bear case EPS of $3.85.

The Street remains overly conservative on volume growth, in firm's view, and they expect significant earnings revisions in the coming months. Though they believe many investors already focus on the more constructive Street estimates (between $4.50 and $5.00), the firm expects that an elevated consensus number will reduce the risk of downside in investor's minds and provide further impetus to capture the skewed upside optionality of such high volume growth rates. They expect their price target to be achieved within the next 12 months.

Notablecalls: While WACH's downgrade will likely knock the stock down, I think GSCO's comments may help it to rebound. I'd go as far as to say that GSCO's comments trump WACH's dg.

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