Foolish Forecast: NYSE Stays Current

Tomorrow morning, the market reports earnings. I mean, NYSE Euronext (NYSE: NYX  ) , the company behind the world's most prestigious stock exchange. Check out a recent Duel over this surprising Rule Breakers pick, then come back here for the latest scoop.

What Fools say:
Here's how NYSE's Motley Fool CAPS scoring rates against some of its peers and competitors:

Market Cap

Trailing P/E Ratio

CAPS Rating

CME Group (NYSE:CME)

$36,488.8

46.3

****

NYSE Euronext

$24,688.7

69.9

*****

InterContinental Exchange (NYSE:ICE)

$12,381.0

51.8

****

NYMEX Holdings (NYSE:NMX)

$11,935.7

73.7

***

NASDAQ Stock Market (NASDAQ:NDAQ)

$5,324.4

13.7

*****

Data taken from CAPS on 11/01/2007.

"Risky pick, but great fundamentals!" raves one CAPS player about NYSE. Another calls the stock a bit expensive but likes it for "good growth and an international franchise." There hasn't been a substantial negative comment on NYSE since August, when one bear blamed Jim Cramer for playing the "pump and dump game" with this stock and predicted the share price would go below $50 by October. It didn't quite happen that way, though. One share costs $92 right now.

What management does:
Look at the growth trends to see if you can spot when the Archipelago merger closed (correct answer: March 7, 2006), and then do the same for the Euronext deal (answer: April 4, 2007). These transactions boosted and then maintained revenue growth, as expected, but the real story is in the margins. Going electronic, and then trans-Atlantic, was clearly good for NYSE's operations.

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

93.5%

94.2%

94.6%

95%

95.4%

95.8%

Operating

7.6%

17.1%

25.5%

34.7%

42.9%

48.1%

Net

4.1%

7.2%

9.4%

12%

12.7%

14.3%

FCF/Revenue

(3.4%)

6.6%

6.3%

7.1%

10.2%

9.6%

Y-O-Y Growth

3/06

6/06

9/06

12/06

3/07

6/07

Revenue

1.2%

19.8%

46.8%

63.9%

73.5%

84%

Earnings

4.9%

83.8%

108.5%

403%

437.4%

264.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Over the past year, the NYSE and NYSE Arca exchanges have handled fewer trades of the Big Board's own listings. The share has dropped from 68% last year to 60% today, which prompted a change in NYSE's pricing strategy.

New York has always had the advantage of being the largest exchange for NYSE listings, with the most available liquidity making for an easier time moving the shares you need to move. But competitors like NASDAQ and private exchanges started charging lower trading fees to their market makers or specialists, stealing share away from the NYSE.

"We recognize that people don't have to trade here anymore," said Chief Operating Officer Larry Leibowitz at a recent conference, and he's walking the talk. The new lower pricing that also encourages more liquidity to enter the exchange should help turn the tide.

The new prices haven't kicked in yet, though, so we'll probably see another share slide this time. But revenue and profits will still look better than last year thanks to the Euronext merger.

Further market-friendly Foolery:


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