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Can Higher Volumes Drive CME Group's (CME) Earnings in Q2?

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CME Group Inc. (CME - Free Report) is set to report second-quarter 2018 earnings on Jul 26 before the market opens. Notably, the company delivered a positive surprise in all the last four quarters.

Let’s see, what is in store for the company this yet-to-be reported quarter.

The top line in the second quarter is expected to have improved, banking on the strength of higher clearing and transaction fees plus access and communication fees. The Zacks Consensus Estimate for clearing and transaction fees is pegged at $893 million, up 12.7% year over year while  access and communication fees stands at $26.07 million, up 4.7% year over year.

For the second quarter, CME Group has reported double-digit volume growth across five product lines.  Average Daily Volume (ADV) during the quarter was driven by an expanded ADV in each of the three months.

CME Group likely has generated a better top line, given its sturdy market position with diverse derivative product lines and a wide global reach. The company remains focused on investments in several areas including organic market data growth and new product extensions and offerings. The Zacks Consensus Estimate for market data and information services is pegged at $112 million, indicating a 16.7% increase from the year-ago quarter.

Additionally, the tax cut, which reduced the tax rate to 21% from 35%, will aid the companies’ bottom line, boosting margins directly in turn. Also, the shutdown of London-based derivatives exchange and clearing house will lead to annual savings of $10-$12 million, which will primarily impact 2018.

The Zacks Consensus Estimate for earnings is pegged at $1.85 per share, reflecting a surge of 39.8% on 13.4% higher revenues of $1.05 billion.

However, the company is likely to witness a rise in expenses in the yet-to-be-reported quarter, mainly due to its investments in several strategic initiatives. Management projects an adjusted total operating expenses guidance excluding licensing fees to range between $1.10 billion and $1.11 billion in 2018.

CME Group Inc. Price and EPS Surprise

What Our Quantitative Model Predicts

Our proven model does not conclusively show that CME Group is likely to beat on earnings this earnings season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: CME Group has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.72. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: CME Group carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the finance sector with the right combination of elements to surpass estimates this time around are as follows:

Nasdaq Inc. (NDAQ - Free Report) is set to report second-quarter earnings on Jul 25. The stock has an Earnings ESP of +0.79% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here..

Atlantic Capital Bancshares, Inc. has an Earnings ESP of +12.05% and a Zacks Rank #2. The company is slated to report second-quarter earnings on Jul 25.

Arthur J. Gallagher & Co. (AJG - Free Report) has an Earnings ESP of +0.63% and is a Zacks #3 Ranked player. The company is slated to announce second-quarter earnings on Jul 26.

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