U.S. Markets closed
  • S&P Futures

    4,407.25
    -7.00 (-0.16%)
     
  • Dow Futures

    34,977.00
    -57.00 (-0.16%)
     
  • Nasdaq Futures

    15,097.25
    -20.50 (-0.14%)
     
  • Russell 2000 Futures

    2,208.00
    -5.40 (-0.24%)
     
  • Crude Oil

    72.14
    +0.23 (+0.32%)
     
  • Gold

    1,798.50
    -0.70 (-0.04%)
     
  • Silver

    25.22
    -0.10 (-0.39%)
     
  • EUR/USD

    1.1808
    0.0000 (-0.0000%)
     
  • 10-Yr Bond

    1.2760
    -0.0100 (-0.78%)
     
  • Vix

    17.58
    +0.38 (+2.21%)
     
  • GBP/USD

    1.3825
    +0.0002 (+0.0111%)
     
  • USD/JPY

    110.1850
    -0.1900 (-0.1721%)
     
  • BTC-USD

    36,718.65
    -1,425.95 (-3.74%)
     
  • CMC Crypto 200

    869.57
    -45.91 (-5.02%)
     
  • FTSE 100

    7,025.43
    -2.15 (-0.03%)
     
  • Nikkei 225

    27,932.08
    +98.79 (+0.35%)
     

CME Group (CME) Gains From Transaction Fees, Faces Cost Woes

·3 min read

CME Group CME is poised to grow riding on expanded products portfolio, non-transaction- related opportunities, OTC offerings, cross-sell through alliances, strong global presence and solid liquidity.

The company has been continually improving its top line, driven by higher clearing and transaction fees, market data and information services and other revenues. Given sturdy market position with diverse derivative product lines, global reach, and increasing electronic trading volume adding scalability, we expect the momentum to continue. CME Group leads with about 90% market share of the global futures trading and clearing services. The company intends to focus more on over-the-counter clearing services.

CME Group’s long-term growth investments are bearing fruits. While it integrated NEX business in 2020, it migrated BrokerTec to U.S. Treasury benchmarks trading and EU government bond and repo markets on to Globex. It aims $200 million run-rate synergies by 2021.

CME Group has been strengthening its balance sheet. While cash and cash equivalents at 2020 end improved 5.3% from 2019 end, long-term debt declined 8% from the 2019-end level. Further, the company’s times interest earned of 17.4 in 2020 was higher than 16.1 in 2019, implying that its earnings are sufficient to cover interest obligations.

Riding on operational excellence, the company increased dividend at a six-year CAGR (2014-2020) of 10.4%.

The largest futures exchange in the world in terms of trading volume as well as notional value traded has a decent surprise history with four-quarter average beat of 1.48%.

However, rising expenses remain a major concern for CME Group as it weighs on margin expansion. For 2021, CME Group expects operating expenses, excluding license fees, to be higher than 2020 figure, though it remains committed to manage expenses. Also, for 2021, CME estimates about $180 million to $190 million in capital expenditures, excluding one-time integration costs and net of leasehold improvement allowances.

Also, CME Group’s diversified product portfolio is significantly exposed to extreme interest rate volatility and currency fluctuation. Further, it is dependent on trading volumes from two product lines for a significant portion of its clearing and transaction fee revenues, which poses concentration risk.

Other Industry Players

Some stocks from the same industry include OTC Markets Group  OTCM, Intercontinental Exchange ICE and Nasdaq NDAQ.

OTC Markets Group delivered earnings surprise of 37.14% in the last reported quarter.

Intercontinental Exchange delivered earnings surprise of 3.67% in the last reported quarter.

Nasdaq delivered earnings surprise of 8.84% in the last reported quarter.   

5 Stocks Set to Double
 

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Intercontinental Exchange Inc. (ICE) : Free Stock Analysis Report
 
CME Group Inc. (CME) : Free Stock Analysis Report
 
Nasdaq, Inc. (NDAQ) : Free Stock Analysis Report
 
OTC Markets Group Inc. (OTCM) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research