CME Group Inc. (CME) is set to report third-quarter 2014 earnings results on Oct 30, 2014. Last quarter, it delivered an earnings surprise of -3.75%. Let us see how things are shaping up for this announcement.
Factors Affecting the Past Quarter
A number of positive tidings at CME Group in the last quarter should contribute positively to earnings. The company received the European Market Infrastructure Regulation (EMIR) authorization for CME Clearing Europe. The company is the first central counterparty (CCP) to receive this approval globally. Moreover, CME Group announced its intention to buy the European energy (Trayport) and global foreign exchange software (FENICS) businesses from GFI Group, Inc. (GFIG) – the smallest of the five global interdealer brokers.
While about 85% of European energy markets trade on Trayport platform, FENICS’ strong clientele in Asia will support effective foreign exchange (FX) product distribution. The deals will boost the company’s London and European operations and its competitiveness in the regions. Additionally, the London Bullion Market Association (LBMA) announced that CME Group, in association with Thomson Reuters Benchmark Services Ltd, a subsidiary of Thomson Reuters Corporation (TRI) will together operate an electronic silver price benchmark.
However, the company’s diverse derivative-product line is being adversely affected by intense competition. Additionally, higher infrastructure costs and regulatory compliances, interest rate volatility, pricing pressure and a higher tax rate pose operational and financial risks, and raise concern regarding an earnings beat this quarter.
Earnings Whispers?
Our proven model does not conclusively show that CME Group is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: CME Group has an ESP of 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at 82 cents per share, making the difference 0.00%.
Zacks Rank: CME Group’s Zacks Rank #3 (Hold) increases the predictive power of ESP but the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You may consider the following company in the financial services space, as our model shows that it has the right combination of elements to post an earnings beat this quarter:
Intercontinental Exchange, Inc. (ICE) has Earnings ESP of +1.50% and a Zacks Rank #3.
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