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Here's Why CME Group (CME) Deserves a Spot in Your Portfolio
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CME Group’s (CME - Free Report) global presence, compelling product portfolio, focus on over-the-counter clearing services and a strong capital position poise it well for growth.
This largest futures exchange in the world in terms of trading volume as well as notional value traded has a solid history of delivering earnings surprises in the last 12 reported quarters. Its earnings grew 8.2% in the last five years.
This Zacks Rank #2 (Buy) stock has gained 8.3% in the past six months, outperforming the Finance sector’s increase of 4% and the Zacks S&P 500 composite’s rise of 4.8% in the same period.
The Zacks Consensus Estimate for CME Group’s 2024 earnings is pegged at $9.42, indicating an increase of 2.6% on 4.6% higher revenues of $5.8 billion. The long-term earnings growth rate is currently pegged at 9.1%, better than the industry average of 8.8%. We estimate the bottom line to increase at a three-year (2022-2025) CAGR of 4.4%.
Growth Drivers
CME Group’s strength lies in its organic growth. The top line continues to benefit from clearing and transaction fees that contribute the lion’s share. Increased volatility drives trading volumes, which, in turn, fuel clearing and transaction fees. We estimate the 2025 top line to witness a three-year CAGR of 5.5%. Clearing and transaction fees are projected to increase at a three-year CAGR (2022-2025) of 5.2%.
CME has a 90% market share of global futures trading and clearing services. It is witnessing growth in electronic trading volume and higher adoption of crypto assets with increased interest across the entire crypto economy. This, in turn, should continue to fuel an increase in volumes.
This apart, CME’s investments are showing desirable results. A solid capital position supports organic market data growth, expansion in product breadth and capital deployment.
CME Group boosts shareholders' value by increasing payouts. It hiked dividends at a five-year CAGR (2019-2023) of 8%. Its dividend yield is 2.2%, better than the industry average of 1.6%, making the stock an attractive pick for yield-seeking investors. Also, CME Group pays five dividends per year, with the fifth being variable and based on excess cash flow in the year.
Notably, its free cash flow conversion has been more than 85% over the last many quarters, reflecting its solid earnings.
Estimates for MarketAxess’ 2024 earnings per share indicate an increase of 12.9% from the 2023 estimated figure. The consensus mark for earnings has moved 1.9% north in the past 30 days. In a year, MKTX has lost 18.8%. The expected long-term earnings growth rate is 8.1%.
Coinbase has a decent track record of beating earnings estimates in three of the last four quarters and missing in one, the average surprise being 62.95%. COIN stock has risen 168.7% in a year. The Zacks Consensus Estimate for COIN’s 2024 earnings per share indicates an improvement of 35.1% from the 2023 estimated level.
Chubb delivered a trailing four-quarter average earnings surprise of 6.51%. In a year, the stock has risen 3.9%. The Zacks Consensus Estimate for CB’s 2024 earnings suggests a rise of 6.9% from the year-ago estimated figure.
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Here's Why CME Group (CME) Deserves a Spot in Your Portfolio
CME Group’s (CME - Free Report) global presence, compelling product portfolio, focus on over-the-counter clearing services and a strong capital position poise it well for growth.
This largest futures exchange in the world in terms of trading volume as well as notional value traded has a solid history of delivering earnings surprises in the last 12 reported quarters. Its earnings grew 8.2% in the last five years.
This Zacks Rank #2 (Buy) stock has gained 8.3% in the past six months, outperforming the Finance sector’s increase of 4% and the Zacks S&P 500 composite’s rise of 4.8% in the same period.
The Zacks Consensus Estimate for CME Group’s 2024 earnings is pegged at $9.42, indicating an increase of 2.6% on 4.6% higher revenues of $5.8 billion. The long-term earnings growth rate is currently pegged at 9.1%, better than the industry average of 8.8%. We estimate the bottom line to increase at a three-year (2022-2025) CAGR of 4.4%.
Growth Drivers
CME Group’s strength lies in its organic growth. The top line continues to benefit from clearing and transaction fees that contribute the lion’s share. Increased volatility drives trading volumes, which, in turn, fuel clearing and transaction fees. We estimate the 2025 top line to witness a three-year CAGR of 5.5%. Clearing and transaction fees are projected to increase at a three-year CAGR (2022-2025) of 5.2%.
CME has a 90% market share of global futures trading and clearing services. It is witnessing growth in electronic trading volume and higher adoption of crypto assets with increased interest across the entire crypto economy. This, in turn, should continue to fuel an increase in volumes.
This apart, CME’s investments are showing desirable results. A solid capital position supports organic market data growth, expansion in product breadth and capital deployment.
CME Group boosts shareholders' value by increasing payouts. It hiked dividends at a five-year CAGR (2019-2023) of 8%. Its dividend yield is 2.2%, better than the industry average of 1.6%, making the stock an attractive pick for yield-seeking investors. Also, CME Group pays five dividends per year, with the fifth being variable and based on excess cash flow in the year.
Notably, its free cash flow conversion has been more than 85% over the last many quarters, reflecting its solid earnings.
Other Stocks to Consider
Some other top-ranked stocks from the finance sector are MarketAxess (MKTX - Free Report) , Coinbase Global (COIN - Free Report) and Chubb Limited (CB - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Estimates for MarketAxess’ 2024 earnings per share indicate an increase of 12.9% from the 2023 estimated figure. The consensus mark for earnings has moved 1.9% north in the past 30 days. In a year, MKTX has lost 18.8%. The expected long-term earnings growth rate is 8.1%.
Coinbase has a decent track record of beating earnings estimates in three of the last four quarters and missing in one, the average surprise being 62.95%. COIN stock has risen 168.7% in a year. The Zacks Consensus Estimate for COIN’s 2024 earnings per share indicates an improvement of 35.1% from the 2023 estimated level.
Chubb delivered a trailing four-quarter average earnings surprise of 6.51%. In a year, the stock has risen 3.9%. The Zacks Consensus Estimate for CB’s 2024 earnings suggests a rise of 6.9% from the year-ago estimated figure.