CME Group shares rise on analyst upgrade

Wells Fargo upgrades CME Group, sees earnings growth from interest rate futures, equities

Associated Press

LOS ANGELES (AP) -- Shares of CME Group Inc. edged higher on Tuesday after a Wells Fargo Securities analyst issued a report saying the company should benefit from improved earnings growth as some cyclically depressed asset classes become more attractive to investors once the Federal Reserve's bond-buying program ends.

THE SPARK: Wells Fargo Securities senior analyst Christopher Harris upgraded CME Group's shares to "Outperform" from "Market Perform," saying he expects interest rate and equities futures, which account for more than one-third of the company's revenue, to be strong contributors to earnings growth once the central bank's bond purchasing spree known as "quantitative easing" comes to an end.

THE BIG PICTURE: CME Group, based in Chicago, operates the Chicago Board of Trade and other exchanges, facilitating trading of interest rate futures, equities futures, energy, foreign exchange, metals and other asset classes.

ANALYSIS: Growth in interest rate and equities futures has been held back by low interest rate yields as a result of the Federal Reserve's bond-buying program.

The strategy has made bonds less attractive and helped propel stock prices to new heights this year.

However, as the economy has improved, Wall Street has begun to contemplate the possibility that the Fed could pull back on its bond buying program sooner than expected.

That could be a boon for CME Group, Harris suggests.

"We expect interest rate futures to benefit from an end to (quantitative easing) and rising volatility, while equities should get better as attention to this asset class grows," he wrote in a note published Tuesday.

Another variable that could play out in CME Group's favor is the Dodd-Frank financial reform law.

Harris contends that Dodd-Frank, which is being implemented in phases, could continue to accelerate interest rate swaps volumes this year.

The analyst raised its 2013 earnings per share outlook on CME Group to $3.21 from $3.14, and its 2014 outlook to $3.85 from $3.53.

SHARE ACTION: The stock added 21 cents to $68.98 in afternoon trading. Shares are up 37 percent this year.

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