International Securities Exchange Flies Under the M&A Radar

Amidst the jealous love triangle created by the intruder Intercontinental Exchange (ICE) against incumbent Chicago Mercantile Exchange (CME) over Chicago Board of Trade (BOT), and all the loud babble over Nasdaq's (NDAQ) inability to take over the London Stock Exchange, one such company that has been flying under the radar when it comes to M&A is the International Securities Exchange (ISE).

ISE is the largest U.S. equity options exchange with around 27% of the overall market. Options trading has been on the rise - just ask OptionsXpress (OXPS) - or you could see the March activity numbers.

In fact, ISE's market share dropped from 30% to 27.3% even as its volumes rose by 26.7% y/y. With quarterly earnings growth of over 50%, a humble market cap of less than $2 billion, and a 19 multiple, ISE is cheaper than most of its well known rivals. Last month, its CEO had this to say on the occasion of the exchange trading its 2 billionth options contract:

Looking ahead, we expect continued growth of the industry as investors benefit from the use of options as a risk management tool.

Additionally, Banc of America Securities analyst Christopher Allen upgraded the stock to "Buy" from "Neutral," last month, and praised the exchange's operations and management team. I find it surprising therefore, that no one has attempted to pick up ISE. Nevertheless, I believe the company is growing at a good clip and deserves a higher multiple and I think the stock is headed north from here. If its gets bought out, that's a bonus.

Disclosure: I am long ISE but my position can change at anytime without notice.

ISE 1-yr chart