Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



NYSE Euronext Looks Cheap

Even the company that runs the marketplace has to submit to the market's discipline. Motley Fool Rule Breakers pick NYSE Euronext (NYSE: NYX  ) came in $0.05 light on its second-quarter earnings per share compared to the consensus estimate of $0.78. As I write this, the shares are down 14%. That's the headline, but what should long-term shareholders and investors be looking at?

First, there are a lot of moving parts affecting earnings at NYSE Euronext because of acquisitions, dispositions, and cost reduction initiatives. Despite management's efforts to be transparent, these factors introduce volatility into the company's results that is hard to model. In that context, an earnings miss may reflect the fact that the business is in a transitional phase as much as it reflects disappointing performance.

Equities good, derivatives better
In absolute terms, the results look pretty decent with adjusted revenue and operating income increasing 12% and 10%, respectively, year over year. U.S. cash markets volume grew at 7%, less than half the growth in European cash market volume (17%). Buoyed by volatility in equity, credit, and commodity markets, volume growth at the firm's two derivatives arms, NYSE Arca (U.S) and Liffe (Europe), grew 38% and 22%, respectively.

Mind your share
One area of concern: NYSE's market share of matched transactions for NYSE-listed securities fell to less than half during the quarter, with Nasdaq capturing 22%. NYSE's loss in share is at least a five-year trend.

Shareholders or potential investors may want to track this number over the coming quarters. Continued declines in share raise questions about how defensible the franchise really is. (Full disclosure: I recommended Nasdaq Stock Market, now Nasdaq OMX (Nasdaq: NDAQ  ) , in the May 2007 issue of Motley Fool Inside Value.)

Nasdaq OMX isn't the only wolf at the door. Witness the rise of nontraditional competitors such as Bats Trading and the multiplication of broker-dealer-led platforms here and in Europe. Lehman Brothers (NYSE: LEH  ) , Goldman Sachs (NYSE: GS  ) , Citigroup (NYSE: C  ) , Merrill Lynch (NYSE: MER  ) , and Morgan Stanley (NYSE: MS  ) are all participating in at least one project.

The exchanges look pretty darn cheap
Trading at 11.8 times estimated 2009 earnings prior to today's drop, NYSE Euronext looks pretty fetching right now. (At yesterday's close, Nasdaq's multiple was a nearly identical 11.7). Although I think there are lower-risk propositions in the market today, investors who missed the huge 2005-2006 run-up in NYSE Euronext shares have what looks like an acceptable entry point here.

Related Foolishness:

Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. Nasdaq OMX Group is a Motley Fool Inside Value pick. NYSE Euronext is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days, for some education, amusement, and enrichment during these choppy market times. We're all in it together, you know. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 698553, ~/Articles/ArticleHandler.aspx, 10/22/2016 5:06:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
NYX.DL $0.00 Down +0.00 +0.00%
NYSE Euronext CAPS Rating: *****
C $49.57 Down -0.01 -0.02%
Citigroup CAPS Rating: ***
GS $174.67 Up +0.16 +0.09%
Goldman Sachs CAPS Rating: ***
LEH $0.13 Down +0.00 +0.00%
Lehman Brothers Ho… CAPS Rating: *
MER.DL2 $11.64 Down +0.00 +0.00%
Merrill Lynch & Co… CAPS Rating: *
MS $33.44 Up +0.54 +1.64%
Morgan Stanley CAPS Rating: ****
NDAQ $66.18 Up +0.45 +0.68%
Nasdaq CAPS Rating: ****