It is difficult to think of a company with a more successful and ambitious year than the NYSE Group (NYSE:NYX). After a history of specialist interests and resisting automation, CEO John Thain and his team made exceptional progress in transforming NYSE during 2006.

After 213 years as a private club, the NYSE Group became a public company in the first quarter of 2006, merging with all-electronic exchange Archipelago. For the first quarter of 2006, NYSE reported net income of $30.3 million, a 16% increase compared to the first quarter of 2005.

In May, the biggest news in the exchange sector for the year hit -- NYSE announced a $6 billion merger agreement with Euronext. Second-quarter 2006 results were the first to include a full quarter of results from Archipelago, doubling net income to $61.2 million.

In the third quarter, NYSE could not stop its acquisition appetite completely; it made some small purchases, including MatchPoint Trading, a portfolio trading technology company, and a stake in Marco Polo Network, an electronic trading platform for emerging markets. Results for the quarter were strong, with net income of $68 million, a 209% increase over the same period in 2005.

In the fourth quarter, full rollout of the mainly computer, partly human trading system, the Hybrid Market (tm), started in October. So far, test trading has gone well, with 91% of trades being auto-executed, compared to 29% before Hybrid.

The whole exchange sector was re-rated -- or bestowed with a bubble, depending on your view -- this year, and NYSE was a big beneficiary of the trend, with a 96% total return to Dec. 15.

So what does the future hold? In spite of an extreme run-up in the stock, the views of our Motley Fool CAPS community remain resolutely bullish:

NYSE Group

CAPS Rating **** (out of five stars)

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A typical bullish, Foolish opinion:

"[NYSE] will become the first global exchange with the soon-to-be completed merger with Euronext. Integration and cost savings plan will lead to tremendous increases in net income. More mergers/acquisitions to follow. Next stop: Asia."

Only 18 bears are left standing to call the stock overvalued.

Though NYSE was my most successful pick on CAPS -- propelling me into the top 20 at one point -- the current valuation assumes perfect execution on a tricky merger, and multiple technology integrations. Remember, exchanges are utility businesses --driving large volumes of low-margin transactions across a trading platform -- not Google-type innovators. Yet both NYSE and its super-IPO peer, Nymex Holdings (NYSE:NMX), both now trade at higher trailing and forward P/E multiples than Google, and overheating is a concern.

In conclusion, John Thain and his team delivered on their stated 2006 strategy of transforming NYSE with the integration of Archipelago and the successful trial of the Hybrid system. The 2007 strategy is to "transform the markets," as a recent investor presentation proclaimed -- the Euronext merger is the core of this strategy. And despite a year-long tussle with Deutsche-Borse, critical reports from the Parisian establishment, and worries about Nasdaq's (NASDAQ:NDAQ) next step, the merger now looks almost certain. However, the current share price assumes near-perfect execution on the first-ever transatlantic exchange merger.

Bon voyage!

NYSE is a Rule Breakers recommendation. You can find out why and see all past picks with a 30-day free trial of the newsletter.

Fool contributor John Finneran writes and advises on increasing the financial value of technology. He is currently ranked 61 out of 17,523 in CAPS and does not own any of the shares mentioned. The Fool's disclosure policy will trade you its Twinkie for your peanut butter sandwich.