On Dec 11, 2015, we issued an updated research report on CME Group Inc. CME.
CME Group boasts effective capital deployment, modest capital position, and a diverse derivative product line. Moreover, new product launches, strategic alliances and a global presence support the company’s growth.
Efforts to expand and cross sell through strategic alliances, acquisitions, new product initiatives and global presence should drive growth for the company. The expected long-term earnings growth is currently pegged at 11.10%.
The company also has an impressive track record of inorganic growth. CME Group strengthened its presence in the wheat futures market in the U.S. by acquiring KCBT. The company’s expansion in the emerging markets of Europe, Asia and Latin America became plausible with the acquisition of GreenX, which opened a way to achieve a new scale in the energy market products.
The successful launch of S&P-Dow Jones Indices under the CME Group-McGraw Hill joint venture will help the insurer to benefit from assets worth about $6 trillion that are, benchmarked against the leading Dow Jones and S&P indices. This should, therefore, lead to the generation of ample revenue potential.
Operating leverage, which grew 7% in the third quarter of 2015, also bodes well for the company. The last reported quarter witnessed the highest level of operating margin historically achieved by the company.
With respect to quarterly results, third-quarter adjusted earnings surpassed the Zacks Consensus Estimate and also improved year over year on solid top-line growth along with disciplined expense management. Furthermore, this Zacks Rank #3 (Hold) securities exchange delivered positive surprises in each of the last four quarters, with an average of 3.16%.
For 2015 and 2016, the Zacks Consensus Estimate is currently pegged at $3.88 and $4.32, respectively. These translate into year-over-year improvement of 17.8% for 2015 and 11.3% for 2016.
However, CME Group has been suffering from low rates per contract, intense competition and pricing pressure. Also, exposure to interest rate volatility, currency fluctuation, firm government regulations and credit limitation raise concerns.
Stocks to Consider
Some better-ranked stocks from the finance sector are Assured Guaranty Ltd. AGO, Old Republic International Corp. ORI and Cincinnati Financial Corp. CINF. While Old Republic International and Cincinnati Financial sport a Zacks Rank #1 (Strong Buy), Assured Guaranty carries a Zacks Rank #2 (Buy).
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