On January 28, we reiterated our Neutral recommendation on CME Group Inc. ( CME - Analyst Report ) based on the sluggish trading volumes across segments, although the expense management and liquidity remain impressive.

Why the Reiteration?

Estimates for CME Group have been witnessing a downward trend ever since it reported its third quarter results in October last year. The company’s third quarter top line of $683.2 million missed the Zacks Consensus Estimate of $685.0 million, although earnings per share of 70 cents came in a penny higher than the Zacks Consensus Estimate. The company has outperformed estimates in three of the last four quarters, leading to an average surprise of 2.4%.

Over the last 90 days, the Zacks Consensus Estimate for 2012 has edged down 0.7% to $3.03 per share. The Most Accurate estimate for CME Group’s 2012 earnings also stands at $3.03 cents, resulting in an Earnings Surprise Prediction (ESP) of 0.0%. ESP is a leading indicator of an expected positive earnings surprise for shares. As a result, the company carries a Zacks Rank #3 (Hold).

The Zacks Consensus Estimate for 2013 has also declined modestly (down 4.1% to $3.24 per share). Lower trading volumes continue to cast a cautious outlook for most of 2013 as well. CME Group is slated to release its fourth-quarter 2012 results after the closing bell on February 5, 2013.

We believe that CME Group’s efforts to promote, expand and cross-sell its core exchange-traded business through strategic alliances, meaningful acquisitions, newer product initiatives along with its global presence should generate a decent growth in the long run. Nevertheless, currency fluctuations and interest rate volatility pose operational risks.

Alongside, the recently proposed merger of NYSE Euronext Inc. ( NYX - Analyst Report ) and IntercontinentalExchange Inc. ( ICE - Analyst Report ) is liable to snip off CME Group’s market share upon successful completion, adding to the already intense competitiveness. Hence, the near term outlook seems grim and may continue to dampen the company’s operating leverage and margins until the derivative markets gain traction.

Other Stocks to Consider

While we prefer CME Group in the exchange industry based on its fundamental strength, other stocks such as CBOE Holdings Inc. ( CBOE - Snapshot Report ) , which carries a Zacks Rank #2 (Buy), is worth a look.