NYSE Euronext (NYX) released earnings on Monday and investors were less than pleased.  The company reported pro-forma net income of $0.52 per share which compares unfavorably to the $0.62 earned during the same quarter last year.  The gain was technically offset by a $1.59 billion non-cash charge for impairment of intangible items which are primarily associated with the company’s Euronext merger.  Fortunately, this loss will not affect debt covenants, cash flow, or operations.  However, it is an important reminder of just how ugly the environment has been since NYX made these acquisitions.

Most analyst reports issued since the announcement have been relatively negative.  As Barclays pointed out, there is a good bit of confusion in regards to future expense guidance.  The company continues to make investments in growth initiatives while at the same time cutting back on operational expenses for existing businesses.  The confusion has some doubting the expense synergies that are supposed to be created by the company’s latest two acquisitions.  However, management continues to guide investors to model expense savings of $370 million (250 million from the Euronext merger, and 120 million from the AMEX purchase).

Another issue that may have spooked the markets is the fact that NYX is temporarily suspending their share repurchase program.  But despite this cost savings, management has reiterated their commitment to the $0.30 quarterly dividend.  According to the earnings press-release, this is an attempt at striking a balance between responsible capital management (not spending on share repurchases) and supporting shareholder value (continuing the dividend).  At current prices, the dividend yield is roughly 5.4% which should help to support the stock price.

Investors have an important question to answer when deciding whether to hold this stock.  Would I rather the company invest in its long-term growth, or would I rather the company return capital to me as a shareholder?  This is a classic conundrum and its difficult to determine how successful these growth initiatives will be, and yet investors theoretically own the stock because of expected long-term growth.

I personally believe that a temporary halt in repurchasing shares may be the best move for today.  As NYX attempts to ramp its LiffeClear initiative which will bring futures clearing in-house, the need for a strong balance sheet is paramount.  This measure could certainly increase earnings growth over the coming quarters.  Other growth initiatives will hopefully help the company more adequately diversify its revenue stream.  The company will host an investor day on Wednesday, and any clarity given to the markets could potentially buoy the stock price.

With a single digit multiple, NYX appears to be an attractive investment.  Currently the ZachStocks Growth Model has a position in the stock.  There is certainly plenty of volatility in any financial position, but if the stock is able to defend the $20 price level and rally from this point, it will likely become attractive to both value investors as well as technical traders.  Being paid 5.4% as a dividend certainly makes it easier to wait for the stock to move as well.

FD: Author does not have a position in NYX
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