RBC Capital Markets analyst Ashish Sabadra initiated coverage on Intercontinental Exchange Inc. (NYSE:ICE) at an Outperform rating and a price target of $200.

The analyst writes that Mortgage technology is poised for double-digit growth, driven by synergies from the BKI acquisition and a recovering market.

The analyst adds that ICE Bonds are expected to benefit from digitization, while ICE Indices will gain from the shift to passive fixed-income investing.

Sabadra says that the business model is recession-resilient, capitalizing on increased volatility and strong franchises in mortgage origination and servicing, energy benchmarks, the NYSE, and fixed-income indices.

The analyst says that ICE should see mid-single to high-single-digit (MSD-HSD) revenue growth from this sector, supported by strong sales momentum and an expanding implementation pipeline. In addition, opportunities to upsell and cross-sell to the fixed income customer base are anticipated.

In the energy sector, ICE is projected to sustain solid double-digit revenue growth. Increased volatility from macroeconomic, geopolitical, and regulatory uncertainties is expected to drive higher demand for hedging. The shift towards passive fixed income investing should similarly benefit ICE Indices, with the strong franchise likely to support accelerated growth.

Regarding cost synergies and operating leverage, ICE forecasts approximately $200 million from BKI cost synergies by the fifth year post-acquisition. This, coupled with ongoing deleveraging and dividends yielding over 1%, is predicted to generate low teens-plus Total Shareholder Return (TSR) annually.

On a strategic level, ICE plans to use its substantial Free Cash Flow (FCF) primarily for debt reduction in the coming quarters, aiming to lower its leverage ratio to around 3.0x. This is part of a broader strategy to optimize its balance sheet while maintaining the capacity for shareholder returns and strategic acquisitions.

ICE's diverse revenue streams, strategic positioning within key financial markets, and technological capabilities in mortgage and data services underpin its robust competitive stance. The company's focus on enhancing operational efficiencies and expanding its product offerings through acquisitions like BKI positions it well for future growth and profitability.

Investors can gain exposure to the stock via the Listed Funds Trust Horizon Kinetics Blockchain Development ETF (NYSE:BCDF) and the Tema ETF Trust Tema Monopolies and Oligopolies ETF (BATS:TOLL).

Price Action: ICE shares are up 0.46% at $158.85 at the last check Friday.

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