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CME Outperforms Industry, Trades at a Discount: How to Play the Stock
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CME Group (CME - Free Report) shares are trading at a discount to the Zacks Securities and Exchanges industry. Its price-to-earnings of 23.93X is lower than the industry average of 24.07X.
With a capitalization of $91.5 billion, CME Group is the largest futures exchange in the world in terms of trading volume as well as notional value traded. Its efforts to expand futures products in emerging markets and diversify derivative product lines and global reach, along with its OTC offerings, increased electronic trading, cross-selling through alliances, strong global presence and solid liquidity position CME Group for growth.
Image Source: Zacks Investment Research
The stock remains attractively valued compared with other players like Intercontinental Exchange Inc (ICE - Free Report) and Cboe Global Markets (CBOE - Free Report) .
CME stock has gained 9.6% year to date, outperforming the industry, the sector and the Zacks S&P 500 composite’s return in the same time frame.
CME vs Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
CME shares are trading above the 50-day moving average, indicating a bullish trend.
Based on short-term price targets offered by 17 analysts, the Zacks average price target is $256.76 per share. The average indicates a potential 1.1% upside from the last closing price.
Optimistic Growth Projections for CME
The Zacks Consensus Estimate for 2025 earnings is pegged at $10.56, indicating a 2.9% year-over-year increase on 3.5% higher revenues of $6.3 billion. The consensus estimate for 2026 is pegged at $11.00, indicating a 4.2% year-over-year increase on 4.6% higher revenues of $6.6 billion. The expected long-term earnings growth rate is 3.3%.
The consensus estimate for 2025 and 2026 earnings moved 3 cents and 1 cent north in the last seven days, respectively, reflecting analyst optimism.
CME’s Return on Capital
Return on equity, which reflects the company’s efficiency in utilizing shareholders' funds, was 13.6% in the trailing 12 months, better than the industry’s average of 13.5%.
Return on invested capital (ROIC) hovered around 10% over the last few years, reflecting CME’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 0.4%, comparing unfavorably with the industry average of 5%.
Factors Impacting CME
CME Group’s strong market position, driven by varied derivative product lines, bodes well. An exchange always benefits from increased volatility as it drives trading volume, which, in turn, drives clearing and transaction fees. Clearing and transaction fees contribute a major share to the top line. Increasing clearing and transaction fees should continue to boost the top line.
CME’s investments are also showing desirable results. The company is focusing on improving margins through cost management.
A solid capital position continues to support CME Group in accelerating organic market data growth, expanding its product breadth and engaging in capital deployment.
Its free cash flow conversion has remained more than 85% over the last few quarters, reflecting its solid earnings.
CME is exposed to concentration risk. Although the company has diversified its product line, it is still immensely dependent on trading volumes from two product lines — Interest rates and Equities — for a significant portion of its clearing and transaction fee revenues.
CME Group operates in a highly competitive industry. It expects competition to increase, given changes in regulatory reforms. While the derivatives exchange business is likely to see competition from the crypto platform, alternative instruments and the cash markets business are likely to face competition from other electronic communication networks, single-dealer platforms and bank-owned multi-participant platforms.
Parting Thoughts
The company’s strength lies in organic growth. CME Group is witnessing growth in electronic trading volume and higher adoption of crypto assets. A strong global presence, a compelling product portfolio, focus on over-the-counter clearing services and a solid capital position poise the company well for growth.
CME’s dividend history is impressive, too. It pays five dividends per year, with the fifth being variable and based on excess cash flow in a year, making it an attractive pick for yield-seeking investors.
Image: Bigstock
CME Outperforms Industry, Trades at a Discount: How to Play the Stock
CME Group (CME - Free Report) shares are trading at a discount to the Zacks Securities and Exchanges industry. Its price-to-earnings of 23.93X is lower than the industry average of 24.07X.
With a capitalization of $91.5 billion, CME Group is the largest futures exchange in the world in terms of trading volume as well as notional value traded. Its efforts to expand futures products in emerging markets and diversify derivative product lines and global reach, along with its OTC offerings, increased electronic trading, cross-selling through alliances, strong global presence and solid liquidity position CME Group for growth.
Image Source: Zacks Investment Research
The stock remains attractively valued compared with other players like Intercontinental Exchange Inc (ICE - Free Report) and Cboe Global Markets (CBOE - Free Report) .
CME stock has gained 9.6% year to date, outperforming the industry, the sector and the Zacks S&P 500 composite’s return in the same time frame.
CME vs Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
CME shares are trading above the 50-day moving average, indicating a bullish trend.
Based on short-term price targets offered by 17 analysts, the Zacks average price target is $256.76 per share. The average indicates a potential 1.1% upside from the last closing price.
Optimistic Growth Projections for CME
The Zacks Consensus Estimate for 2025 earnings is pegged at $10.56, indicating a 2.9% year-over-year increase on 3.5% higher revenues of $6.3 billion. The consensus estimate for 2026 is pegged at $11.00, indicating a 4.2% year-over-year increase on 4.6% higher revenues of $6.6 billion. The expected long-term earnings growth rate is 3.3%.
The consensus estimate for 2025 and 2026 earnings moved 3 cents and 1 cent north in the last seven days, respectively, reflecting analyst optimism.
CME’s Return on Capital
Return on equity, which reflects the company’s efficiency in utilizing shareholders' funds, was 13.6% in the trailing 12 months, better than the industry’s average of 13.5%.
Return on invested capital (ROIC) hovered around 10% over the last few years, reflecting CME’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 0.4%, comparing unfavorably with the industry average of 5%.
Factors Impacting CME
CME Group’s strong market position, driven by varied derivative product lines, bodes well. An exchange always benefits from increased volatility as it drives trading volume, which, in turn, drives clearing and transaction fees. Clearing and transaction fees contribute a major share to the top line. Increasing clearing and transaction fees should continue to boost the top line.
CME’s investments are also showing desirable results. The company is focusing on improving margins through cost management.
A solid capital position continues to support CME Group in accelerating organic market data growth, expanding its product breadth and engaging in capital deployment.
Its free cash flow conversion has remained more than 85% over the last few quarters, reflecting its solid earnings.
CME is exposed to concentration risk. Although the company has diversified its product line, it is still immensely dependent on trading volumes from two product lines — Interest rates and Equities — for a significant portion of its clearing and transaction fee revenues.
CME Group operates in a highly competitive industry. It expects competition to increase, given changes in regulatory reforms. While the derivatives exchange business is likely to see competition from the crypto platform, alternative instruments and the cash markets business are likely to face competition from other electronic communication networks, single-dealer platforms and bank-owned multi-participant platforms.
Parting Thoughts
The company’s strength lies in organic growth. CME Group is witnessing growth in electronic trading volume and higher adoption of crypto assets. A strong global presence, a compelling product portfolio, focus on over-the-counter clearing services and a solid capital position poise the company well for growth.
CME’s dividend history is impressive, too. It pays five dividends per year, with the fifth being variable and based on excess cash flow in a year, making it an attractive pick for yield-seeking investors.
Given an unfavorable ROIC and concentration risk, it is better to stay cautious on this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.