Sector Concerns Weigh on CME

We are maintaining a Hold rating on the shares of CME Group, Inc. (CME - Analyst Report). Chicago Mercantile Exchange Holdings is the parent company of Chicago Mercantile Exchange Inc., the largest futures exchange in the United States based on notional value, trading volume and open interest.  The company reported first-quarter diluted earnings of $5.25 per share. Pro forma earnings of $4.67 per share were 16 cents below consensus.

We remain optimistic about the continued growth prospects, especially with the recent acquisitions and the global expansion initiatives. We also expect CME to continue to benefit from the ongoing volatility in the markets. Though relative valuation now looks reasonable, the current concerns for the sector continue to weigh on the shares.

CME currently trades at 23.1 times the consensus forward estimate, a 56% premium to the peer group’s median. On a price-to-book basis, the shares trade at a 10% discount to the peer median. Our new six-month price target of $465.00 per share equates to 25.3x our 2008 full year earnings estimate of $18.39 per share, equating to a 1.14 P/E-to-growth (PEG) using the consensus long-term growth rate (LTGR). With the $4.60 per share annual dividend, the target price implies an 8.3% expected total return over the period.

Read the full analyst report on CME

Read the full analyst report on CME