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ICE Launches INR Futures

Zacks Equity Research

IntercontinentalExchange Inc. (ICE) unveiled two new foreign exchange (:FX) futures contracts in Indian Rupee (INR) and Brazilian Real, in an attempt to take an extra step of developing business into emerging nations. These new futures will begin trading from January 28, 2013 onwards.

These non-deliverable forward currencies will be settled in cash and will be hedged against the US dollar. IntercontinentalExchange is the first US stock exchange to offer futures contract in Indian Rupee. Thus far, the company offers more than 60 FX futures contracts. During the second quarter of 2012, the company also included non-deliverable forward FX over-the-counter (:OTC) contracts to its clearing services officially.

The company is strategizing to attain a strong foothold in the emerging markets and has achieved a competitive leverage on demonstrating immense growth potential in its futures and OTC market. The company is well positioned to drive its operating leveragethrough these organic efforts and maintain its competitive edge against arch-rivals such as CME Group Inc. (CME) and NYSE Euronext Inc. (NYX). Its volumes and margin are also expected for grow once the global markets stabilize, as more futures and OTC contracts are now exchange-traded and cleared.

Moreover, introduction of new products is crucial for the core growth of the company, which has been following the ongoing weak industry trends. This was even reflected in its third quarter results, wherein both top- and bottom-line lagged the year-ago comparisons due to severe decline in transaction and clearing fee revenues driven by weak performances from the OTC segment and credit default swap (:CDS) business. However, some cushion was provided by capital efficiency, strict expense control, lower tax rate and growth in the company’s market data and other businesses.

Currently, the Zacks Consensus Estimate for the fourth quarter operating earnings is pegged at $1.83 per share, which would climb about 3.7% from the year-ago quarter. Over the last 30 days, 12 out of 16 analysts covering the stock have reduced their estimates for the fourth quarter of 2012, while 3 upward revisions were witnessed. However, earnings estimate of $7.60 per share for 2012 exhibit stability with an expected year-over-year growth of 7.4%.

We retain our long term Neutral recommendation on IntercontinentalExchange. It also has a quantitative Zacks #3 Rank that translates into a short-term Hold rating.

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