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Why the Downgrade?
CME Group has witnessed sharp downward estimate revisions after reporting disappointing fourth-quarter and full-year 2012 results. Shares of this derivative exchange are likely to continue fluctuating given the absence of any major growth catalyst in the near future.
On Feb 5, CME Group reported fourth-quarter 2012 operating earnings per share of 63 cents, which was in line with the Zacks Consensus Estimate. However, it significantly lagged the year-ago quarter’s earnings of 71 cents.
The year-over-year decline was attributable to a 10.3% decline in total revenue, partially offset by a 10% dip in operating expenses. CME Group’s fees from clearing and transaction services, which accounts for about 84% of the total revenue, have been consistently deteriorating as a result of poor average daily volumes across asset classes.
While liquidity remains modest, poor financial results have deterred the company to repurchase shares. This further raises caution among investors. Although CME Group is straining to control expenses, the overall weak trading activity, lower volumes along with currency and interest rate fluctuations amid intense competition only heighten uncertainty in the near future.
The Zacks Consensus Estimate for 2013 decreased 3.2% to $3.14 per share over the last 30 days, with 10 out of the 16 estimates being revised downward. For 2014, 7 of 14 estimates were revised downward, over the last 30 days, sinking the Zacks Consensus Estimate by 2.8% to $3.59 per share. No upward revisions have been witnessed for both the years.
Other Stocks to Consider
While most stock exchanges are bearing the brunt of weak volumes, though not as severe as CME Group, there are some strong performers in the financial sector, which include XL Group Plc ( XL - Analyst Report ) , Employers Holdings Inc. ( EIG - Snapshot Report ) and Bank of Montreal ( BMO - Snapshot Report ) . All of these carry a Zacks Rank #1 (Strong Buy).
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