Global futures exchange – CME Group Inc. CME is scheduled to release its first-quarter 2015 financial results before the opening bell on Apr 30, 2015.
In the last reported fourth-quarter 2014, the company delivered a positive earnings surprise of 2.2%, while the four-quarter trailing average beat was pegged at 0.2%. Let’s see how things are shaping up for this announcement.
Earnings Whispers?
Our proven model shows that CME Group is unlikely to beat earnings as it lacks the required combination of two key ingredients.
Zacks ESP: CME Group has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of 94 cents per share and the Zacks Consensus Estimate of 95 cents, is -1.1%.
Zacks Rank: CME Group has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.
Note that stocks with Zacks Rank #1 (Strong Buy), #2 (Buy) and #3 have significantly higher chances of beating earnings. Conversely, Sell-rated stocks (#4 and #5) are kept under the radar and are never considered going into the earnings announcement, especially when the company is witnessing a negative earnings momentum.
The combination of CME Group’s Zacks Rank #3 and ESP of -1.1% deters us from making a conclusive outcome.
Factors at Play
CME Group fared well on the trading volumes’ front during the past quarter, boosting core growth. Despite a 3% decline in March, average daily volumes rose 10% year over year in first-quarter 2015, achieving maximum gains in the first two months of 2015, driven by higher rate per contract and an improved momentum. Moreover, the Globex electronic trading platform remained a major part of the exchange’s total trading volume, growing 11% in the quarter.
Additionally, the Letter of Intent with Taiwan Futures Exchange (TAIFEX) paves the way for new growth opportunities in Asia, while the launch of new physically-delivered cocoa futures and European natural gas products in alliance with LOOP LLC and NEO Markets Inc. in late March further diversified the product portfolio.
Alongside, the staff reduction initiated late last year and persistent focus on expense control should continue to sustain margins going forward. Furthermore, modest liquidity and strong debt profile supports healthy capital deployment via dividend payouts, evident from the 6.4% dividend hike in Feb 2015.
Conversely, while total expenses are expected to remain flat in 2015, management expects higher compensation and benefit expenses, partly offset by controlled marketing expenses. Capital expenditure is also likely rise to $150 million in 2015 from about $138 million in 2014.
Moreover, CME Group is exposed to operational and financial risks from interest rate volatility, higher tax rate amid uncertainty in OTC markets amid intense competition and regulatory challenges. These growth laggards may continue to restrict the desired upside in operating margins and cash flow. Hence, we remain at the periphery presently.
Other Stocks to Consider
Here are some other financial companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this coming quarter:
New York Mortgage Trust Inc. NYMT has an Earnings ESP of +8.7% and a Zacks Rank #1.
Santander Consumer USA Holdings Inc. SC has an Earnings ESP of +4.4% and a Zacks Rank #1.
XL Group Plc XL has Earnings ESP of +2.7% and a Zacks Rank #1.
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