One of the better performing sub-sectors in 2013 has been the financial exchanges. The CME, ICE, NYX, NDAQ, and CBOE have all advanced more than 30% in 2013. Amazingly, even NYX is up more than 30% even though it already agreed to a merger with ICE in December 2012. That deal was 67% stock / 33% cash, and since ICE is up almost 50% in 2013, NYX is zooming higher with it.
Here’s year-to-date total return of the exchange stocks, along with some financial metrics:
- CME – Up 48.7%. $25 billion market cap. 28x Trailing 12 month P/E stock with expected earnings growth of 15% over the next 2 years.
- ICE – Up 47.8%. $13 billion market cap. 23x P/E with expected growth of 15-20% over next 2 years.
- NYX – Up 37.1%. Going to be acquired by ICE. $10 billion market cap. 19x P/E with expected growth of 20%
- NDAQ – Up 29.7%. $5 billion market cap. 13.5x P/E with expected growth of 15%.
- CBOE – Up 57.0%. $4 billion market cap. 23x P/E with expected growth of 15%.
Interestingly enough, the CME, which is the largest company of the group and the best performer in 2013, looks to be the most expensive on a valuation vs. growth perspective. The company has been a middling stock since 2009, mainly because the low interest rate environment has seriously hurt its Eurodollar futures and Treasury-notes and bonds volume. The stock’s rise in 2013 occurred almost exactly in tandem with the move higher in rates:
CME investors are anticipating increased rate derivatives volumes as rates move higher. But the valuation might have gotten ahead of itself in the meantime.
That high valuation for CME looks particularly onerous when compared to its exchange peers. ICE has similar growth prospects, but is more commodity-focused (and eventually, equity focused, with the purchase of NYX). It trades at a lower multiple with similar growth prospects. NDAQ is much cheaper, and its consensus earnings growth estimates are much cheaper (though NDAQ’s product mix is less appealing than the derivative-focused CME and ICE). Even CBOE, which has been the fastest earnings growth name in the past 2 years, trades at a lower multiple than the CME. Moreover, the CBOE is a leader in the fast-growing U.S. options markets.
Add it all up, and CME looks to be the least attractive of these stocks, higher rates or not. NDAQ is the conservative bet, trading at a cheap valuation with decent growth, notwithstanding the many technical glitches and trading halts we’ve seen this year. CBOE is the high-growth play that’s higher risk / higher reward, and ICE looks fairly priced relative to its peers.