This U.S. stock is a ‘formidable business’ with a ‘really exciting runway’ for growth, analyst says
The Intercontinental Exchange (ICE) is a “formidable business,” said Hannah Gooch-Peters of asset management firm Sanlam Investments UK. It’s a stock with consistent earnings growth, recurring revenue and high barriers to entry, the global equity investment analyst told CNBC Pro Talks on Wednesday. ICE operates exchanges globally, provides data analytics services and mortgage technology. It owns exchanges such as the New York Stock Exchange. Gooch-Peters said ICE has tapped the huge amount of data from its exchanges arm to boost its data analytics. “Equities trading is a lot more commoditized but what ICE does is they take that data from the equity trading, which of course is massive, and they use that to feed into their data analytics side of their business. So they really do go hand in hand with each other,” she said. “So you have recurring revenue in their data analytics,” she added. “Data is power right? And they’ve got absolutely tons of it. And they are able to then use that to give to fee-paying customers.” Gooch-Peters also called its mortgage-signing technology “really, really exciting.” She noted that there are many paper-based, manual processes involved in taking up a mortgage. But that service automates all those processes and saves the customer about 30% in costs over the long term, which “will make [ICE] the market leader,” she said. “We think the runway for growth, particularly on that mortgage technology side is really exciting. But it’s also very well balanced by this data analytics and by the exchange side of the business as well,” Gooch-Peters said. She added that ICE has built an “amazing, diversified business,” which helps earnings growth be consistent even if one part of the business isn’t performing. The stock is up nearly 12% this year, and analysts covering it give it potential further upside of about 16%, according to FactSet. Sanlam Investments UK recently took a position in ICE. Its $5 billion-plus Global High Quality Fund invests in global stocks with a “high quality bias.” They include companies that have a high return on capital, low debt, and a “sustainable competitive advantage” that produces significant free cash flow. That fund beat the broader market by 9% in 2022, according to Gooch-Peters, who urged investors to avoid chasing trends and to look beyond “obvious” opportunities, such as megacap tech stocks. Gooch-Peters told CNBC Pro Talks that her firm has been very valuation-driven when it comes to picking stocks, and focuses on “very high quality” companies without overpaying for them. “You’ve got this sort of inherent resilience of very high quality companies, their earnings streams are more resilient. So I think it’s that sort of double barreled effect really of having the valuation overlay, investing in resilient companies that helped us perform very strongly last year,” she said.
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