At The Motley Fool, we poke plenty of fun at Wall Street
analysts and their endless cycle of upgrades, downgrades, and
"initiating coverage at neutral." So you might think we'd be
the last people to give virtual ink to such "news." And we
would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the
analysts said. We'll also show you whether they know what
they're talking about. To help, we've enlisted
Motley Fool CAPS, our tool for rating stocks and analysts
alike. With CAPS, we track the long-term performance of Wall
Street's best and brightest -- and its worst and sorriest,
too.
This little banker went to market ...
Chalk it up to my being a parent of small children, but
as I reviewed Wall Street's latest batch of upgrades,
downgrades, and initiations yesterday evening, a nursery
rhyme ran through my brain. (And if this metaphor gets a bit
mangled, chalk
thatup to the sleep-deprived state of all parents of
small children.)
Susquehanna Financialwent to market yesterday -- or more
precisely, visited various
stockmarkets across the land, and handed out new
ratings to each. Which of these little piggies got roast
beef, and which of 'em got none? That's today's story.
CME Group
The lucky, beef-fed winner of this industry
(in Susquehanna's estimation) is CME Group (NYSE: CME).
Praising its: "defensible market position, solid earnings and
free cash flow growth capabilities," Susquehanna rates this
stock "positive." The banker especially likes Chicago Merc's
"95% market share in the U.S. futures industry ... which we
believe will enter another bull market when the U.S. central
bank comes off its liquidity programs." As an added bonus,
Susquehanna notes that the company "owns 4.8% of the largest
exchange in Brazil," and will soon begin "overnight trading
in the Kospi 200 futures contract from the Korea
Exchange."
But if Susquehanna thinks CME's good eatin', it finds
CME's rival exchanges less appetizing:
NYSE Euronext (NYSE: NYX): Susquehanna
thinks NYSE will underperform its peers as "equity tape
volume growth in 2009" falls short of expectations, leading
to missed earnings estimates.
Nasdaq OMX (Nasdaq: NDAQ): Likewise,
Susquehanna's of the opinion that "cash equity trading" has
run abnormally high at Nasdaq "due to the credit crisis
during the past year." (Because panic begets frantic
trading.) Susquehanna sees trading volumes and value
picking up in Europe, mitigating the damage from a U.S.
slowdown. Regardless, the banker fears we will see "lower
than consensus estimates" in 2010.
InterContinental Exchange (NYSE: ICE):
Last, but far from least, comes the ICE. Susquehanna loves
its "diverse revenue stream" and calls the firm "well
managed." Over the long term, the banker predicts
"continued weakness in the U.S. dollar [will lead to]
continued investment into the commodity sector and foreign
stocks ... to hedge U.S. currency exposure." Yet despite
all the pluses, Susquehanna says it's still "waiting for
the right entry point."
Tell us what you really think, Susquehanna
To my mind, that's a gentle way of saying:
"InterContinental Exchange costs too durn much" -- and with
ICE trading for a 27 P/E, it's hard to argue with that
assessment. Likewise, I see a lot of logic in Susquehanna's
panning of NYSE Euronext. Profitless and generating minimal
free cash flow ($113 million over the last 12 months), I see
little prospect for profit in that stock, either.
To me, ICE and NYSE both seem like obvious calls --
valuation-based recommendations that even Susquehanna could
make. Where I break with Susquehanna is on the trickier
picks, the ones where even a savvy software analyst like
Susquehanna could run afoul, since it lacks much experience
in the financial sector (remember that all four of this
week's ratings are "initiations" of coverage).
Stock
Susquehanna Says:
CAPS Says:
Susquehanna's Picks Beating S&P
By:
Activision Blizzard (Nasdaq:
ATVI)
Outperform
*****
78 points
Oracle (Nasdaq: ORCL)
Outperform
**** Continued... |