CME Group, Inc. (CME - Free Report) is well-poised for growth, driven by a solid global presence, a focus on over-the-counter clearing services, diversified derivative product lines and a robust capital position.
The company boasts a market share of 90% of the global futures trading and clearing services. It also remains focused on non-transaction related opportunities, OTC offerings and the expansion of futures products in emerging markets. All these should continue to drive the top line that increased, witnessing a five-year (2015-2019) CAGR of 10% and nearly 13% in 2019.
Shares of this Zacks Rank #3 (Hold) stock lost 5.5% in the past year underperforming the industry’s growth of 0.7%. Nonetheless, the company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.
CME Group has a decent history of beating estimates in three of the last four quarters, the average beat being 2.27%.
The company’s impressive inorganic growth story is backed by acquisitions made over the past many years. The buyout of London-based NEX Group plc should help CME Group emerge as a cross-border trading powerhouse, while generating $200 million in run-rate cost synergies annually by the end of 2021.
The company intends to continue investing in several areas like organic market data growth, product extensions and offerings for clients’ convenience to trade complex spread options on the box electronically. It is already reaping benefits from its past investments.
Banking on its healthy capital position, CME Group effectively deploys capital. In a year, the company pays five dividends, with the fifth being variable depending on excess cash flow that year. In February 2020, the company hiked the regular quarterly dividend by 13%, making it an attractive pick for yield-seeking investors. Its dividend yield of 2.1% compares favorably with the industry average of 1.9%.
Estimates for CME Group have been revised upward over the past seven days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2020 earnings per share has moved up 1.6% in the said period.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $7.58 and $7.90, indicating a year-over-year increase of 11.4% and 4.2%, respectively. Its expected long-term earnings growth rate is pegged at 8.10%.
However, some factors that pose threat include exposure to volatile interest rates, currency fluctuations, strict government regulations and limited credit availability in the current unstable capital and credit markets. An increase in total expenses is also a major concern for the company due to higher compensation and benefits, technology expenses, professional fees and outside services. CME Group’s expenses increased nearly 28% and 34% in 2018 and 2019, respectively.
Stocks to Consider
Some better-ranked finance stocks are Intercontinental Exchange Inc. (ICE - Free Report) , Cboe Global Markets (CBOE - Free Report) and MarketAxess Holdings Inc. (MKTX - Free Report) , each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Intercontinental Exchange and Cboe Global Markets surpassed estimates in the last four quarters, with a positive surprise of 4.28% and 9.49% on average, respectively.
MarketAxess surpassed estimates in three of the last four quarters, the positive surprise being 0.53%, on average.
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