On Oct 7, 2016, we issued an updated research report on CME Group Inc. (CME - Analyst Report) .
CME Group’s strong fundamentals help it in improving operating leverage (a catalyst to fuel growth in average daily volumes or ADV). This enables CME Group to maintain its strong foothold in the market where it operates. In fact, the insurer holds about 90% market share of the global futures trading and clearing services.
As mentioned above, operating leverage is a key positive for the company. We appreciate the insurer’s Sep 2016 ADV of 15 million contracts per day, which grew 6% from the prior-year period.
Moreover, the securities exchange has been making efforts to promote, expand and cross-sell its core exchange-traded business through strategic alliances, prudent acquisitions, new product initiatives and global presence. These actions should also drive and support the company’s growth.
Last month, CME Group unveiled the first-ever, exchange-traded precious metals spread and ratio futures contracts. The market participants will now be able to better manage precious metals price relationships using these contracts. We view these contracts as a valuable addition to the company’s portfolio.
Notably, the securities exchange delivered positive surprises in three of the last four quarters, with an average beat of 2.25%.
However, exposure to interest rate volatility, currency fluctuation, stringent government regulations and limited credit availability in the current unstable credit and capital markets, have been weighing on the company’s liquidity. This in turn might lead to a decline in the customer demand, if this trade scenario continues or worsens in the future.
In addition, the company has been witnessing escalating expenses. Higher costs are likely to adversely affect the company’s results in the future.
Stocks that Warrant a Look
National Interstate Corporation (NATL - Snapshot Report) , a specialty property and casualty insurer, delivered positive surprises in two of the last four quarters, with an average beat of 7.59%.
United Insurance Holdings Corp. (UIHC - Snapshot Report) , another P&C insurer, delivered positive surprises in two of the last four quarters, with an average beat of 37.97%.
Health Insurance Innovations Inc. (HIIQ - Snapshot Report) , a life insurer, delivered positive surprises in all of the last four quarters, with an average beat of 262.50%.
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