NYSE Euronext Profit Jumps as Exchanges Combine

NYSE Euronext (NYX), this morning reported their first quarter as a combined entity of NYSE Group and Euronext and the results year-over-year were strong. On a straight-up basis NYX reported earnings of $0.62/share vs. $0.39/share, with revenue rising to $161Million up from $60Million. That's an over 160% increase. But before we pop the champagne corks lets look at the relative numbers. Due to share increases from the joining of the two companies and other related costs adjusted earnings were also released.

On this adjusted basis NYX earned $0.65/share vs a year ago $0.50/share and the street's expected $0.64/share. Analysts have said that favourable tax rates led to the earnings upside. Net Earnings on this basis were reported as $172Million vs. a year ago 133Million. Up almost 30%.

The company said that they are continuing to look at merger or buyout possibilities but assured investors that these will be undertaken with the utmost discipline. Investor fears of late have centered around the company having to drastically overpay to acquire assets in the Exchange space. Euronext experienced a record increase in trading and the NYSE had its biggest trading volume quarter ever with over 166Billion shares traded. The growth story in NYX in seen through these raw listing, trading and volume numbers. With 1.4Billion in cash at the end of the quarter, and a gain of almost $600Million from the sale of LCH Clearnet in hand, the company looks to be readying the war chest for further acquisitions. The words of management regarding patience and diligence before moving forward with deals should be met favourably by investors.

One area of contention may be the statistics that show the decrease in trading share for NYX on its own exchange. Nasdaq Stock Market (NDAQ) is making inroads in trading NYSE listed securities as the market share for NYX fell from 74% to 63%. It is a very competitive industry as these two American exchange heavyweights fight for a majority share of trading volume. With record volumes being reported across the exchanges, I believe this fall will be neutralized and NYX will settle with a majority of volume in the 65-70% range. Any further market share losses would certainly be a talking point in the quarters to come.

NYX, now sports a trailing P/E of 37, however this will continue to adjust downwards as the effect of Euronext is seen on the companies earnings. Forward P/E is a better barometer in this case and rides in the low 20s. For a company with this much organic growth, it almost looks like a value play and this kind of talk should have long term investors excited about future company and stock prospects. Case in point the Price earnings Growth ratio sits at well under 1, given these most recent results and this would be expected to normalize in the coming quarters.
I believe the further upgrades will be coming soon as will price target increases.

The average estimate of $3.35 for CY08 has substantial upside if NYX can continue to show the organic trading and listing growth it has demonstrated. Let along the trading giant uses its cash to buy another asset and bring it into the fold. With almost 10% of its market cap in cash, and a Price to sales under 10 there is room to expand numbers for 2008 and with this can peg 2008 earnings near $3.50/share. Applying a P/E of 30 would bring a target price of $105 into next year. This is on the high end of analyst estimates but it is a level that is attainable if the company stays the course. Downside risk seems minimal from these levels and as such investment could represent as much as 40% to the upside. A rock solid business model, increasing organic metrics and potential acquisitions on the horizon there's a lot to like here.

Disclosure: Author is long NYX

The Time is Right to Invest in NYSE Euronext

You're a trader, investor, market-maker, whatever title suits you. It's virtually all identical to NYSE Euronext (NYX), since a lot of your trading action goes through them. This mortgage crisis has led stocks lower lately, but with it has also brought virtually record trading volumes to the exchanges. This is a very sustainable business, the business of running an exchange. More individuals are getting into the investing game each and every day and this type of organic growth bodes well for the future as the market, through the Internet, becomes more accessible to a next generation of investors.

The markets have always had the perception of being smug, and a game for the big boys on the floor of the exchange. Not anymore as any kid with an online trading account can bump shoulders with the heavyweights in the volatile after-market. As the world expands, its only getting smaller. This is the type of philosophy management has taken with NYX. Their purchase of Euronext, which provides exchange services in the UK, Belgium, France, The Netherlands and Portugal, is a big step in consolidating trading worldwide. It's a lofty goal, but management is focused on this growth through acquisition mind state.

This stock was a Jim Cramer favourite on his CNBC Mad Money show and he even called it his growth stock of the year in the past. The market wasn't kind to the Old SkeeDaddy as NYX was pushed down from a high of $112 to it's current valuation in the high $70s. However, I think now is the time to really jump into this company as it prepares to announce quarterly earnings on Aug. 2nd. And hey it was just upgraded by Banc Of America from Sell to Neutral!
All the abuse that Jim takes over his daily changing picks, he's still right more times than he is wrong and the work he does to get the investing message out there has to be commended, even if NYX didn't turn out to be a star over the last 8 months. The fundamentals have not changed for this growth business and with a forward P/E in the 20s it is certainly time to consider investing. In fact it might be one of the only times to get in before the company leaves those on the sidelines in the dust.

Analysts targets vary from $76 to $113, with an average of about $92 over the next 6-12 months. That's an average estimated upside of 18% return according to the professionals. The sentiment about the company is increasing and hey they even payed out a dividend last month.
Oh and the company just made $550Million from the sale of LCH Clearnet, its clearing house. This will allow the company more flexibility as it meets requirements and regulations in Europe.

Analysts estimate sales growth of over 116% this quarter, 122% next quarter and an even 100% for the year. This kind of growth from a company that runs stock exchanges? Yes, and the expansion plans will only continue for NYX as it will try to keep ahead of its major competitors here in North America and abroad. Add this to the fact that trading volumes have never been higher for the company than they have been over the last month and the prospects are bright for future upside earnings surprises and an appreciation in the stock as analyst after analyst will have no choice but to issue an upgrade.

I expect this cycle to begin as earnings are announced later this week. The old adage of "Invest in what you know and use" creeps up again. Chances are many companies you hold and trade are listed on the New York Stock Exchange.

Disclosure: Author is long NYSE