Sector Snap: Exchange Operators

Shares of most stock exchange operators rose Thursday even after an analyst cut his rating on the sector amid a belief that recent gains have outpaced potential improvements to earnings power.

In a research note, BMO Capital markets analyst Michael Vinciquerra said most exchange operators' shares have risen in 2009 and investors are more optimistic about growth potential in the sector. However, Vinciquerra cautioned that optimism is too strong. He noted that stock prices never reflected a downturn in the trading of some investment products on exchanges, so no rebound should be expected and thus priced into the stock.

Despite the downgrade to the sector, shares of IntercontinentalExchange Inc. and Nasdaq OMX Group Inc. both rose in late morning trading.

Shares of IntercontinentalExchange gained $5.21, or 4.6 percent, to $117.71. Nasdaq OMX shares rose 76 cents, or 3.6 percent, to $21.95.

Vinciquerra did increase his earnings estimates for Nasdaq OMX based an increased industrywide assumption for U.S. equity and options volume. Because of that change in expectations, he increased his earnings expectations for Nasdaq OMX to $1.88 per share from $1.85 per share in 2009 and $2.12 per share from $2.08 per share in 2010.

Analysts polled by Thomson Reuters, on average, forecast earnings of $1.88 per share for 2009 and $2.11 per share for 2010.

Aside from the sector downgrade, Vinciquerra cut his individual rating on NYSE Euronext, which was one of the few exchange operators to decline Thursday.

Shares of NYSE Euronext fell 65 cents, or 2.2 percent, to $29.16. Shares have traded between $14.52 and $62.95 during the past year.

Vinciquerra cut his rating on NYSE Euronext to "Underperform" from "Market Perform." In a research note, he said he cut the rating because, after a recent rally, shares trade at a "significant multiple premium to its closest peer despite what we consider to be relatively similar growth prospects." Nasdaq OMX Group is considered its closest peer and NYSE Euronext should not be trading at a much higher premium, Vinciquerra said.

NYSE Euronext also is unlikely to generate strong revenue growth in the near future as it faces increased competition and pricing pressure in the U.S. market and its European derivatives exchanges, Vinciquerra said.

Despite the downgrade, Vinciquerra did increase his earnings estimates for NYSE Euronext to $1.76 per share in 2009 from $1.73 per share and $2.29 per share for 2010 from $2.24 per share. The increased earnings estimate is tied to an increase in overall U.S. equity and options volume assumptions.

Analysts polled by Thomson Reuters, on average, forecast earnings of $1.85 per share for 2009 and $2.25 per share for 2010.