6 Reasons Why You Must Add CME Group (CME) To Your Portfolio
Zacks Investment Research | Apr 10, 2018 11:53PM ET
Estimates for CME Group Inc. (NASDAQ:CME) have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 and 2019 earnings being raised 6.3% and 2% to $6.96 and $7.07, respectively.
CME Group offers a broad range of products covering major asset classes, based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities and metals.
Shares of this Zacks Rank #1 (Strong Buy) securities exchange have rallied 11.5% year to date, outperforming the industry ’s growth of 6.3%.
Let’s focus on the factors that make CME Group a stock to hold on to for greater returns.
Improving Top Line: Last few years saw CME Group’s top-line rise , witnessing a five-year CAGR of 4.6% owing to higher clearing and transaction fees plus access and communication fees. Notably, average daily volume (ADV) expanded at a CAGR of 13% over the last 45 years. In fact, CME Group has reported record volumes for the first quarter of 2018, marking the highest average daily volume in a quarter despite market volatility.
Growth Initiatives: CME Group remains committed to meet the changing needs of its clients in an evolving global marketplace. To cater to the emerging demand of evolving cryptocurrency markets, the exchange introduced bitcoin futures. Also, long-term growth investments are exhibiting desirable upsides.
CME Group remains focused on investments in several areas including organic market data growth as well as new product extensions and offerings. Notably, management anticipates organic market data revenue growth of 5-6% over the next few years.
The company has agreed to acquire NEX Group plc for £10 per share in a cash-stock deal. The buyout could lead the acquirer to emerge as a cross-border trading powerhouse.
CME Group shuttered its London-based derivatives exchange and clearing house, CME Europe and CME Clearing Europe. Terminating operations might lead to annual savings ranging between $10 million and $12 million, which in turn will likely impact the current year in a huge way.
Capital Management: CME Group boasts a healthy balance sheet and a cash position, enabling it to pay five dividends a year with the fifth being variable, based on excess cash flow in the year. These aspects make the stock an attractive pick for yield-seeking investors. Its dividend yield of 1.71% betters the industry average of 1.47%.
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Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $6.96, representing a year-over-year increase of 45.9% on 17.7% higher revenues of $4.3 billion
For 2019, the consensus mark for earnings per share is pegged at $7.07 on $4.4 billion revenues, translating into a respective 1.7% and 3.4% year-over-year raise.
CME Group has expected long-term earnings per share growth of 10.5%.
Attractive Valuation: Looking at the company’s price-to-book ratio — the best multiple for valuing securities exchanges because of large variations in their earnings results from one quarter to the next — shares are currently underpriced. The company has a trailing 12-month P/B ratio of 2.49, falling below the industry average of 2.82.
Positive Earnings Surprise History: The company boasts an encouraging earnings surprise history, having exceeded the Zacks Consensus Estimate in each of the trailing seven quarters with an average beat of 2.27%. This trend of consecutive estimate beats denotes the company’s operational excellence.
In fact, our proven model conclusively shows that the company is poised for a positive earnings surprise in the to-be-reported quarter. This is because the stock has the right combination of the following two key ingredients for an earnings beat, a bullish Zacks Rank of 1, which increases the predictive power of ESP and an .
FBL Financial sells individual life insurance and annuity products. It pulled off an average four-quarter positive surprise of 1.54%.
CNA Financial provides commercial property and casualty insurance products, primarily in the United States. It pulled off an average four-quarter positive earnings surprise of 46.88%.
AllianceBernstein, an investment manager, provides research services to its clients. It delivered an average four-quarter beat of 8.54%.
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