I last reviewed Intercontinental Exchange (ICE) in this October 31, 2025 post. I considered its valuation to be attractive and acquired an additional 100 shares in a ‘Core’ account in the FFJ Portfolio @ ~$145.245/share on October 31, 2025.
With the February 5, 2026 release of Q4 and FY2025 results, this is an opportune time to revisit this existing holding.
Business Overview
The company’s website and Part 1 of ICE’s FY2025 Form 10-K has a comprehensive overview of the company and various risk factors. The Investor Presentation that is accessible through the Additional Resources link also contains a wealth of information.
We see from the following graph that ICE has a consistent track record of adjusted EPS growth.
ICE’s revenue used to be heavily reliant on volatile trading revenue. This made ICE’s quarterly results susceptible to wild variances. Through a series of acquisitions, ICE has diversified its business into new lines of business that generate more reliable annual recurring revenue (ARR).
ICE has successfully used its Mortgage Technology segment to significantly shift the firm toward a more stable, recurring revenue model. Prior to COVID, ICE’s recurring revenue was ~40% of total revenue. Recurring revenue is now closer to ~51%. ICE now no longer only wins when markets are volatile. It is now a software powerhouse that earns money every month from the massive backlog of existing U.S. mortgages.
Financial Review
Q4 and FY2025 Results
Material related to ICE’s Q4 and FY2025 earnings release is accessible here.
Conventional And Modified Free Cash Flow (FCF) Calculations (FY2019 – FY2025)
FCF is a non-GAAP measure, and therefore, its calculation is inconsistent. Many investors deduct CAPEX from Operating Cash FLow (OCF) to arrive at FCF. The more conservative modified method also deducts share-based compensation (SBC).
As noted in prior ICE, CME Group (CME) and Nasdaq (NDAQ) posts, we must make an adjustment for Section 31 fees (SEC or transaction fees). They are small regulatory charges imposed on the sale of exchange-listed securities based on Section 31 of the Securities Exchange Act of 1934. The fee is 1% of one eight-hundredth of the dollar value of the equities sold.
These fees are deducted because:
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They represent a real cash outflow directly tied to a company’s trading activities, such as when a brokerage or trading firm executes stock sales.
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Self-regulatory organizations (SROs) technically pay these fees to the SEC. They are passed on to broker-dealers and ultimately to their customers or the company itself if it is executing trades as part of its operations.
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Free cash flow aims to reflect all operating and transactional cash obligations that reduce available cash to equity holders, including recurring, transaction-specific outflows like Section 31 fees. Not deducting them would overstate a company’s true free cash flow, misrepresenting its financial capacity for dividends, reinvestment, or debt paydown.
The CAPEX figures below include capital expenditures and capitalized software development costs.
Capital Allocation
ICE demonstrates a highly disciplined and strategic approach to capital allocation. In recent years, it has transformed into a business that is less reliant on the transaction-heavy exchange segment to a high-margin, recurring data and software firm.
Aggressive deleveraging has been a primary focus following the $11.9B Black Knight acquisition in order to return to its target leverage ratio of 3.0x – 3.25x. ICE achieved a 3.0x ratio at FYE2025.
In 2025, ICE generated a record $4.662B in OCF and deployed it as follows:
- ~$1.105B in dividends;
- ~$1.294B is share repurchases in FY2025 versus $0.894B in the first 3 quarters.
- ~$0.791B of strategic CAPEX primarily directed toward the migration of its mortgage and exchange platforms to the cloud and AI-driven automation tools.
FY2026 Guidance
We can expect ICE to continue focus on balancing cost discipline with investments in future profitable growth. The following reflects ICE’s current FY2026 guidance.
ICE expects total Mortgage Technology revenues to grow in the low- to -mid-single-digit range. The high end of the range assumes the number of loans originated across the industry grows in the low
teens, while the low end assumes flat to modest growth. At both ends of this range, ICE anticipates continued growth in recurring revenues in 2026. The following factors underpin management’s confidence:
Revenue synergies have nearly doubled from $55 million at FYE2024 to ~$0.1B at FYE2025 for the following reasons.
ICE has substantially worked through the 2020 to 2022 vintage contract renewals by reducing but not yet eliminating the headwind from Encompass minimum adjustments. These adjustments act as a stabilizer in bad times but a brake in good times. Currently, ICE is in the ‘brake’ phase. While the mortgage market is improving, ICE will not experiencing the full financial benefit until its clients fully ‘burn through’ their pre-paid capacity and start paying overage fees.
- Most Encompass contracts include a minimum volume commitment. During the mortgage market downturn of 2023–2024, many lenders were processing far fewer loans than their contractual minimums. Because lenders were already paying for a ‘floor’ of transactions they were not using, ICE’s revenue remained artificially stable during the crash.
- As mortgage activity picked up in late 2025, lenders began using up this ‘pre-paid capacity. ICE does not see a dollar of new transaction revenue until a lender exceeds their minimum. This creates a lag where market activity rises, but ICE’s revenue growth remains flat or “muted” because it’s just filling the gap of the already-paid minimums.
- As contracts come up for renewal in the current high-rate environment, ICE faces headwinds from downward ‘minimum adjustments’.
ICE also has to content with client attrition and ‘right sizing’.
- Mortgage companies merging or going out of business in 2024- 2025 was common. When they fail, ICE loses the subscription minimums from the acquired/failed entity.
- Large lenders have been aggressive in ‘right-sizing’ their contracts. If a lender previously committed to 10,000 loans/year but now only does 5,000/year, they fight to lower their ‘minimum adjustment’ floor upon renewal. This creates a direct hit to ICE’s Recurring Revenue line.
ICE continues to integrate Black Knight’s MSP and Empower platforms. The headwind involves moving clients from legacy platforms onto Encompass. During this transition, ICE often has to offer ‘minimum adjustment’ credits or discounted floors to prevent churn. This acts as a temporary drag on the Mortgage Technology segment’s margins.
ROIC and WACC
Return on Invested Capital (ROIC) provides an indication of a company’s efficiency. In essence, is a company actually creating value or ‘burning’ cash for the sake of growth?
A company with a higher ROIC is mathematically worth more because it requires less reinvestment to achieve that growth.
A good indication of how well a company is performing is to compare ROIC to the Weighted Average Cost of Capital (WACC). WACC, however, is not a metric officially reported by ICE but it can be roughly estimated based on the company’s credit profile and market conditions.
The generally accepted high-level formula used by Wall Street is:
ROIC = NOPAT/Average Invested Capital
with the Net Operating Profit After Tax (NOPAT) formula being Operating Income (EBIT) x (1-tax rate)
This shows how much profit the core business makes while ignoring how much debt the company has.
The Average Invested Capital is the total money tied up in the business.
- The Operating Approach formula is
- The Financing Approach is
One shortcoming with ROIC is that it is a non-GAAP metric meaning the input data plugged into the ROIC formula is inconsistent.
ICE consistently maintains a positive ROIC spread, meaning it generates returns significantly higher than its cost of capital. In FY2025, for example, ICE’s ROIC was in the low double digits whereas its WACC was in the high single digits with an approximate spread of 4.5% – 5%.
ICE’s ROIC is lower than CME Group’s (CME) due to ICE’s sizable ‘Intangible Assets’ ($15.353B) and ‘Goodwill’ ($30.646B) at FYE2025 because of massive acquisitions like Black Knight and Ellie Mae. It is currently in a ‘harvesting’ phase where it is extracting high-margin synergies from its past investments.
Risk Assessment
The debt-to-adjusted EBITDA leverage ratio at the end of Q4 2025 is ~3.0x. This is a reduction from 4.3x upon the completion of the Black Knight acquisition in Q3 2023, and 4.1x and 3.3x at FYE2023 and FYE2024.
The following table reflects the fair value of ICE’s debt as of December 31, 2024 and December 31, 2025.
ICE’s current senior unsecured long-term debt credit ratings and outlook remain unchanged from my prior review.
- Moody’s: A3 (stable and affirmed on August 21, 2025)
- S&P Global: A- (stable and last reviewed on February 26, 2025)
Both ratings are at the bottom of the upper-medium grade investment-grade category. These ratings define ICE as having a strong capacity to meet its financial commitments. It is, however, somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
ICE’s ratings are acceptable for my purposes.
Dividend and Dividend Yield
ICE does not maintain a dividend history on its website. Its dividend history is accessible here.
On March 31, 2026, ICE will distribute its first $0.52/share quarterly dividend which is up from the prior $0.48/share quarterly dividend.
As always, dividend metrics should have little bearing on our investment decisions. The focus should be on total potential shareholder return.
In December 2025, ICE’s Board approved an aggregate of $3.0B for future share repurchases with no fixed expiration date that became effective January 1, 2026. The $3.0B replaced the previous amount approved by the Board.
During 2025, ICE repurchased 7.7 million shares of its outstanding common stock at a cost of ~$1.294B. These shares are held in treasury stock.
Based on the company’s 2025 financial reports and share price trends throughout the year, the average price paid for these repurchases can be estimated as follows:
ICE does not provide a single ‘blended average price’ for the entire year but we can estimate the approximate range using their quarterly reports and share count data.
- January 1 – June 30: ICE repurchased $0.496B and shares traded between ~$135 – ~$155.
- July 1 – December 31: ICE accelerated share repurchases (~$0.798B). This is attributed to the company meeting its leverage targets. During the latter part of 2025, the stock price rose steadily, trading in the ~$155 – ~$170 range.
- Dividing the total spend by the reduction in the weighted average diluted share count suggests an average price in the mid-$150s.
Valuation
ICE does not provide adjusted diluted EPS guidance. Using the current $152.28 share price and the current broker estimates, the forward adjusted diluted PE levels are:
- FY2026 – 13 brokers – mean of $7.63 and low/high of $7.44 – $7.92. Using the mean estimate: ~20.
- FY2027 – 12 brokers – mean of $8.53 and low/high of $7.87 – $9.08. Using the mean estimate: ~17.9.
- FY2028 – 7 brokers – mean of $9.38 and low/high of $8.51 – $10.17. Using the mean estimate: ~16.2.
In FY2025, ICE’s FCF/share was ~$7.282 and ~$6.868 calculated used the conventional and modified methods. Using the current share price, ICE’s valuation based on FY2025 FCF/share results is ~21 and ~22.2.
ICE’s FCF conversion ratio using modified FCF is often just less than 100% if we use non-GAAP EPS but often in excess of 100% if we use diluted EPS. FY2021 is the only year during the FY2019 – FY2025 time frame in which adjusted diluted EPS is less than GAAP EPS.
If we use a 96% FCF conversion ratio for FY2026 and $7.63 for the FY2026 adjusted diluted EPS, FCF is likely to be ~$7.32 ($7.63 * 96%). Using the current $152.28 share price, the adjusted P/FCF for FY2026 is ~20.8.
The Q1 2026 share count guidance is 568 – 574 million with a 571 million mid-point. The weighted average in FY2025 is 575 million shares for a 4 million variance. Repurchasing 4 million shares in Q1 at an average price of ~$155 amounts to ~$0.62B versus ~$1.294B in FY2025. Since ICE has reached it target leverage level, I envision additional share repurchases in Q2 – Q4 2026.
In my October 31, 2025 post I reflect:
On October 31, 2025, I acquired an additional 100 shares @ $145.245 in a ‘Core’ account in the FFJ Portfolio.
ICE does not provide adjusted diluted EPS guidance. Using my recent purchase price and current broker estimates the forward adjusted diluted PE levels are:
- FY2025 – 17 brokers – mean of $6.90 and low/high of $6.75 – $7.11. Using the mean estimate: ~21.05.
- FY2026 – 17 brokers – mean of $7.53 and low/high of $6.92 – $7.96. Using the mean estimate: ~19.3.
- FY2027 – 12 brokers – mean of $8.36 and low/high of $7.30 – $8.81. Using the mean estimate: ~17.4.
ICE has generated $5.517 and $5.224 of YTD2025 FCF/share. This is based on ~576 million diluted outstanding shares.
If ICE generates a comparable level of FCF in Q4 as in each of the first 3 quarters, we can expect another ~$1.84 and ~$1.74 thereby increasing the FY2025 FCF to ~$7.36 and ~$7 calculated on a conventional and modified basis. Divide my $145.245 purchase price by these FCF estimates and we get P/FCF of ~19.7 and ~20.8 (conventional and modified FCF calculation methods).
These FY2025 FCF estimates are ~107% (~$7.36/$6.90) and ~101% (~$7/$6.90) of the FY2025 mean adjusted diluted broker estimates. This appears reasonable considering FCF/share typically exceeds GAAP EPS by a wide margin.
With a wide variance in ICE’s FY2025 share count guidance (569 – 575 million), we could see better valuations than those calculated above. Much will depend on the extent to which ICE repurchases shares in Q4.
Final Thoughts
In the FFJ Portfolio I currently hold:
- 300 shares in a ‘Core’ account at an average cost of $122.6553; and
- 200 shares in a ‘Side’ account at an average cost of $126.9656.
I also hold more shares in a retirement account but do not disclose the details of these accounts.
In my 2025 Mid-Year Portfolio Review, ICE was my 25th largest holding. At the time of that review, shares were trading at ~$183.45.
At the time of my 2025 Year-End Investment Holdings Review, ICE was my 27th largest holding and shares closed at $161.96.
ICE’s capital allocation efficiency may not be as stellar as that of a pure-play exchange like CME. It has, however, sacrificed a slightly higher ROIC to build a massive recurring revenue base in Mortgages and Data. Management rationale for the massive Black Knight and Ellie Mae acquisitions was to turn ICE into a much more resilient business whereby it can grow its capital base consistently even when trading volumes are low.
Now that ICE has attained a normalized leverage level, I anticipate share repurchases will play an increasingly important role in how management allocates capital. Given this, we should hope that ICE’s share price experiences weakness. Should this happen I will likely add to my exposure. At the moment, however, I have no immediate plans to acquire additional shares.
I wish you much success on your journey to financial freedom!
Note: Thanks for reading this article. Please send any feedback, corrections, or questions to finfreejourney@gmail.com.
Disclosure: I am long ICE.
Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decisions without conducting your research and due diligence. You should also consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.
