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Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $ICE 🧘🏽‍♂️

•NTM P/E Ratio: 24.07x
•5-Year Mean: 22.31x

•NTM FCF Yield: 4.74%
•5-Year Mean: 4.82%

As you can see, $ICE appears to be trading slightly above fair value

Going forward, investors can expect to receive ~7% LESS in earnings per share & ~2% LESS in FCF per share🧠***

Before we get into valuation, let’s take a look at why $ICE is a quality business

BALANCE SHEET🆗
•Cash & Equivalents: $1.00B
•Long-Term Debt: $17.36B

$ICE has an OK balance sheet, an A- S&P Credit Rating & 5.68x FFO Interest Coverage

RETURN ON CAPITAL🆗
•2020: 7.8%
•2021: 8.6%
•2022: 8.3%
•2023: 7.5%
•2024: 8.5%
•LTM: 9.2%

RETURN ON EQUITY🆗
•2020: 11.4%
•2021: 19.2%
•2022: 6.6%
•2023: 10.0%
•2024: 10.5%
•LTM: 11.1%

$ICE has decent return metrics as the company relies heavily on acquisitions

REVENUES✅
•2014: $3.09B
•2024: $9.28B
•CAGR: 11.62%

CASH FROM OPERATIONS✅
•2014: $1.51B
•2024: $4.61B
•CAGR: 11.81%

NORMALIZED EPS✅
•2014: $1.93
•2024: $6.07
•CAGR: 12.14%

SHARE BUYBACKS❌
•2014 Shares Outstanding: 573.00M
•LTM Shares Outstanding: 576.50M

MARGINS✅
•LTM Gross Margins: 100.0%
•LTM Operating Margins: 49.4%
•LTM Gross Margins: 31.0%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~7% LESS in EPS & ~2% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ICE has to grow earnings at a 12.04% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2028 EPS growth over the next few years to be just more than the (12.04%) required growth rate:

2025E: $6.97 (14.8% YoY) *FY Dec

2026E: $7.72 (10.7% YoY)
2027E: $8.59 (11.3% YoY)
2028E: $9.55 (11.2% YoY)

$ICE has a great track record of meeting analyst estimates ~2 years out, but let’s assume $ICE ends 2028 with $9.55 in EPS & see its CAGR potential assuming different multiples

26x P/E: $248.30💵 … ~12.4% CAGR

25x P/E: $238.75💵 … ~11.0% CAGR

24x P/E: $229.20💵 … ~9.7% CAGR

23x P/E: $219.65💵 … ~8.3% CAGR

22x P/E: $210.10💵 … ~6.9% CAGR

As you can see, we’d have to assume ~25x earnings for $ICE to have good double digit CAGR potential

$ICE is a high-quality business with a wide-moat & generates ~65% of total revenue from their exchanges revenue — the other ~35% from fixed income & data services revenue & mortgage technology

While $ICE has traded for an average 22.31x multiple over the past 5 years, I believe it should normally trade for 24x - 26x given its predictability & moat, among other things

Today at $174💵 $ICE appears to be a fair consideration for investment

I consider $ICE a stronger consideration closer to $160💵 where I can potentially expect 11% CAGR assuming a more conservative 23x end multiple in 2028

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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