Beating Buffett

The New York Stock Exchange is arguably the best know investment listing venue in the world. Their merger with Euronext further advanced their status as the largest financial instrument listing firm. The total market value of corporations listed with NYX equal about $30 trillion – a higher value than the market caps of all companies listed on the next four largest exchanges combined. NYX operates six cash equities exchanges and six derivatives exchanges located in five countries around the world.

NYSE Euronext [NYX: $26] has been aggressively growing its exposure to the equity options markets in both the US and Europe. It earns money via trading activity, from initial and recurring (annual) listing fees paid by its associated companies and from the sale of its data streams.

NYX shares came public in March of 2006 when the markets were hot. Their shares peaked at $112 late that year on final 2006 EPS of $1.59 – an insane P/E of 70x. Estimates for 2009 (with Q4 yet to be reported) now run between $1.85 and $2.01 making today’s multiple a much more reasonable 13x.

Consensus views for 2010 center on $2.25 /share putting the forward multiple at <11.6x.

Dividends were initiated in 2007 and have been raised since to their present rate of $0.30 quarterly. That’s good for a very nice 4.61% current yield – better income than what’s now available on bank CDs and even 10-year treasuries. With low capital spending needs and total interest coverage of about 6.9x, the payout looks to be sustainable.

Here are the per share numbers from continuing operations for NYX as reported by Value Line:

* 2009 data includes Q4 consensus estimates.

While the NYSE is no longer totally dominant in its space it remains a major player. Expense reduction and firming equities markets bode well for improved results in both revenues and earnings this year and further into the future. The best growth may well come from their increasing exposure to the worldwide derivatives markets.

At less than 12x year-ahead expectations I don’t see a lot of risk from today’s price point. The 4.6% yield certainly will provide a floor. Why sell these shares to put money into lower yielding instruments?

I’m not counting on NYX getting back to its historical P/E levels of > 20x. I do think we’ll see a rebound to at least 14x forward earnings over the next year or two. Even that minor rebound would take NYX shares back to about $31.50 by year-end (or + 21% from yesterday’s close).

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NYSE Euronext* is a diverse exchange group. They offer a range of products and services in cash equities, futures, options, swaps, exchange-traded products, bonds, market data, and commercial technology solutions. NYX is also a liquid equities exchange group operating a range of markets, which include New York Stock Exchange (NYSE), Euronext, NYSE Liffe, NYSE Arca, NYSE Alternext, NYSE Amex and NYSE Liffe US. Through NYSE Technologies (NYXT), NYX operates a globally distributed connectivity network that supports trading on its markets while providing trading and information technology solutions to third-party financial markets and other financial institutions. 

*Company Profile from MSN MoneyCentral 

NYSE Euronext [NYSE:NYX] July 21, 2009: $26.50 
52-week range: $14.52 (Mar. 6, 2009) - $51.18 (Jul. 23, 2008) 
Dividend = $0.30 quarterly = 4.52% current yield 

I wrote this stock up a few months back when it was a few dollars a share cheaper. I still like the prospects and have a new combination buy/write play that looks to provide excellent risk/reward from today through March 2010. 

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NYSE Euronext: (NYX) - April 29, 2009: $21.80 [9:45 EST]
52-week range: $14.52 (Jan. 23, 2009) - $76.71 (May 5, 2008)
Dividend = $0.30 quarterly = 5.69% current yield.

* NYSE Euronext is a diverse exchange group. The Company offers a range of products and services in cash equities, futures, options, swaps, exchange-traded products, bonds, market data, and commercial technology solutions, all designed to meet the evolving needs of issuers, investors, financial institutions and market participants. The Company is also a liquid equities exchange group. The Company operates in a range of markets, which include New York Stock Exchange (NYSE), Euronext, NYSE Liffe, NYSE Arca, NYSE Alternext, NYSE Amex and NYSE Liffe US. In addition to its markets, through NYSE Technologies (NYXT), the Company operates a globally distributed connectivity network that supports trading on its markets, and also provides trading and information technology solutions to third-party financial markets and other financial institutions.

* Company description by MSN MoneyCentral

When the markets were hot in 2006 and 2007 these shares traded as high as $112 and $109.50 with each year’s respective low at $48.60 and $64.30. The late 2008 through March 2009 extreme sell-off drove NYX to a panic bottom of $14.52 /share in January. The shares wre at $21.80 Tuesday just after the opening.

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