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Why Is CME (CME) Up 11.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for CME Group (CME - Free Report) . Shares have added about 11.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CME due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CME Group Q1 Earnings Beat, Revenues Miss Estimates

CME Group reported first-quarter 2019 adjusted earnings per share of $1.62, which beat the Zacks Consensus Estimate by 1.3%. However, the bottom line declined 12.9% year over year.

The quarter witnessed low levels of volatility in several product areas. However, product innovation and a growing proportion of volume from customers outside the United States helped.

Net income came in at $1.39 per share, which plunged 21% year over year.

Performance in Detail

CME Group’s revenues of $1.2 billion increased 6.4% year over year. The top line however missed the Zacks Consensus Estimate by 1%. The year-over-year increase in revenues can be attributed to higher market data and information services (up 37% year over year), and other (up 139% from the prior-year period).

Total expenses increased 49% year over year to $548.6 million during the reported quarter, attributable to higher compensation and benefits, technology expenses, professional fees and outside services, depreciation and amortization as well as other.

Operating income declined 14.8% from the prior-year quarter to $631 million.
Average daily volume was 18.6 million contracts in the quarter. This marked the third-highest quarter ever in terms of average daily volume. However, it slipped 16% year over year. Average rate per contract declined in five product lines.

Financial Update

As of Mar 31, 2019, CME Group had $1.1 billion of cash and marketable securities, down 4.4% from 2018 end.

As of Mar 31, 2019, long-term debt of $4.3 billion increased 12.2% from 2018 end.

As of Mar 31, 2019, the company had total assets worth $71.6 billion, down 7.6% from 2018 end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, CME has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise CME has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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