Sell Block: NYSE's Turnaround

This week’s Sell Block was a release rather than an incarceration. Cramer put NYSE Euronext, a former untouchable, firmly in the buy column.

NYSE’s been a sell, sell, sell since May 20, when the stock was trading at just under $68. Rampant hedge-fund selling, among other problems at the company, cut that share price by 40 points. But NYX has taken such a beating that this once-hated name – by Cramer especially because he had such high hopes for it – is now an accidental high-yielder, offering 4.4%.

This alone is reason to own the stock, Cramer said. And with NYSE expected to generate $3.15 of cash flow per share, that $1.22 a share dividend should be safe. He recommended buying NYX in increments on any decline to take advantage of the increasing yield. (Remember, as stocks drop, their dividend yields go up.)

Beyond the yield, though, NYSE Euronext is a real turnaround story. The company’s regaining market share, successfully integrating its AMEX and Euronext acquisitions and there’s even takeover talk.

NYSE’s seen a market share increase for two straight months, a vast improvement when you consider that from 2005 to 2008 the company went from controlling 80% of the total NYSE-listed stock trading volume to just 40%. But a new market model that speeds up order executions, improves price discovery and reduces volatility, as well as a Universal Trading Platform to unify NYSE’s different markets, has helped the company regain some of its foothold.

Synergies and cost-cutting at AMEX and Euronext are also starting to take shape. Staff reductions at both divisions should equal as much as $170 million in savings by 2010. The AMEX buyout also put 680 of the 830 listed exchange-traded funds in the U.S. under the NYSE umbrella. And the London International Financial Futures and Options Exchange, which was a part of the Euronext merger, is bringing European derivatives clearing in house for 2009 and could generate as much as $100 million for NYSE in just a couple of years.

Add to this that reports say NYSE’s been talking with Deutsche Bourse about a merger, though neither company has confirmed the speculation. Both stocks have already moved as a result, but an actual deal, Cramer said, would move them much more.

While Cramer would normally recommend waiting for a pullback in this stock before buying, even Thursday’s closing price of just under $26 gets you Euronext for free. NYSE paid $10 billion for the overseas exchange, but the entire market cap of the combined company right now is just $7.3 billion. Even the enterprise value – the amount a buyer would have to pay to acquire NYSE-Euronext – is only $9 billion.

So with NYSE taking share, cutting costs and offering such a nice yield, “it’s time for this company to leave the Sell Block,” Cramer said, “and return to the world of buy, buy, buy.”

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