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Is there irony in shares of a trading exchange that trade briskly on disappointing financials? After all, won't the frenetic buying and selling -- well over 6 million shares around lunchtime in New York -- actually help its state?
Let's find out.
Shares of NYSE Euronext (NYSE: NYX ) opened 7% lower today, after the global exchange giant posted lower-than-expected results. Revenue climbed 21% to $1.2 billion, though net revenue fell by 2% as a result of pricing initiatives that resulted in aggressively higher rebates to its customers.
NYSE reported a loss of $5.06 a share, but that is the handiwork of nearly $1.6 billion in non-cash charges to write down the value of goodwill and intangible assets. On a pro forma basis, the exchange operator posted a profit of $0.52 a share. That isn't good enough for investors, as it's less than the $0.65 a share that the company posted a year ago and even the $0.55 a share that analysts were willing to settle for this time around.
It's not the first time that investors in the actual exchanges have been disappointed. Companies like Nasdaq OMX Group (Nasdaq: NDAQ ) , Chicago Mercantile Exchange (NYSE: CME ) , and IntecontinentalExchange (NYSE: ICE ) were all the rage when global marketplaces were consolidating and the world markets ran with the bulls.
Enthusiasm is harder to find these days, even for the non-stock specialists like MarketAxess Holdings (Nasdaq: MKTX ) in corporate bonds. CME and IntercontinentalExchange specialize in futures and options, but they too find their stocks shaved by more than half since last year's highs.
IntercontinentalExchange reports tomorrow, and it will give a broader picture of the industry. However, you can't blame investors for gnawing on NYSE Euronext at today's marked-down levels. The stock earned $2.87 on an adjusted basis for all of 2008, giving it a trailing earnings multiple in the single digits. The company is also committed to its $0.30-a-share quarterly dividend, rewarding patient investors with a chunky 5.2% yield.
Are the earnings and the payouts sustainable? That's the greater concern here. Analysts see earnings sliding in 2009. The company should earn more than enough to cover its quarterly distributions, but they may not seem all that prudent, since it's sporting $2.1 billion in net debt at the moment. It's certainly manageable now, but what if the company goes on another buying spree?
There may be little left to buy, especially since it completed its purchase of the American Stock Exchange back in October, but liquidity is a virtue these days.
NYSE Euronext is cheap, even on a forward earnings basis, but it's ultimately going to boil down to the faith of Joe and Jane Trader. The markets were abuzz this past quarter, but it's going to take a great deal more confidence to bring the stocks back into favor.