NYSE Euronext: An Alternative To Bonds

| About: NYSE Euronext (NYX)

While it's not fair to compare the safety of NYSE Euronext (NYX) stock with US government bonds, it might be worthwhile to take a look at different alternatives to the very low yield that government bonds are offering.

Without starting a discussion about possible inflation caused by the last QEs (anymore QEs?), it's certain that sometime down the road the Fed will start raising rates and someone holding long-term bonds will be left either with a very low yield or with the possibility of assuming some loss on principal, in order to switch to some higher yield alternative.

So why would NYX be a good alternative? Well, it's easy to understand how it makes money: every time someone trades a stock or derivative in Belgium, France, the Netherlands, Portugal and some markets in the UK and USA, it charges a fee, and in most of those markets, there is no alternative to paying that fee if you want to trade, so NYSE Euronext business can be expected to be around for a long time. Also, it's not important for the company if the market is going up or down, it makes money either way.

As opposed to government bonds, being long NYX at the current prices represents a dividend yield of above 4% with the possibility of an appreciation of your investment, so you would have a double win versus being long government bonds.

For the switch to make sense, it's very important that you believe in the safety of the company, and by the nature of its business, I guess we can assume it's fairly stable, so let's also check if the numbers add up.

Currently, the company is trading at about $27, valuing it at about $7B. Aside from the 4% dividend yield, if the company continues to deliver an EPS of $2.4, the yearly return of your investment will be above 8% (2.4/27), which means that it is also reasonable to expect long-term price appreciation. Also, the company expects to continue to grow EPS, so that 8% return will keep on increasing.

Here is some data from the balance sheet and income statement:

2011 2010 2009
Total Assets (millions) 13072 13378 14382
Long-term Liabilities (millions) 4990 5080 5298
Total Equity (millions) 6933 6844 6935
Operating Income (millions) 964 833 803
Net income 619 577 219

This was a very brief analysis, where events like a major technological failure that could affect the viability of the company wasn't considered (even if it's a very low probability event, it can happen), or where some overpriced M&A activity can occur and affect the company's results, but the goal was to try to help investors with an alternative to the very low returns that US government bonds are offering and will likely leave them stuck with the bonds for a very long time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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