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CME Group Hits 52-Week High: Can the Bull Run Continue?

Shares of CME Group Inc. CME hit a new 52-week high of $197.08 on Nov 19 gaining traction from strong third-quarter 2018 earnings and record futures and options volume. With about 2 million shares exchanging hands in the last trading session, the stock closed at $195.61.

Robust Q3 Results

CME Group’s bottom line of $1.45 outpaced the Zacks Consensus Estimate by 2.1% and improved 21.8% year over year on higher trading volumes across interest rate, equities and metals product lines. Also, solid expense discipline contributed to more than 20% bottom-line growth.

Revenues of $1.2 billion grew 1.5%. Average daily volumes increased in three product lines.  

Shares of the company have gained 8% since its solid third-quarter results, slightly underperforming the industry’s growth of 8.4%.

This Zacks Rank #3 (Hold) securities exchange flaunts a solid surprise history, surpassing estimates for 10 straight quarters, the average being 1.97%.

Record Futures and Options Volume

On Nov 14, CME Group’s energy futures and options reached a daily trading volume record of 5.10 contracts, outperforming its previous record of 5.07 million contracts on Dec 1, 2016.

Why the Stock’s Bull Run May Continue

CME Group is the largest futures exchange in the world in terms of trading volume and notional value traded. The company has about 90% market share of the global futures trading and clearing services. This apart, it is focused on expansion of futures products in emerging markets, non-transaction related opportunities and OTC offerings. These together should ramp up its growth profile. Also, management anticipates organic market data revenue growth of 5-6% over the next few years.

The company is intensifying focus on over-the-counter clearing services on interest rate swaps and foreign exchange. To emerge as a cross-border trading powerhouse, CME Group acquired London-based NEX Group plc. The company estimates $200 million in run-rate cost synergies annually by the end of 2021 from this buyout.

The company’s shutting down of London-based derivatives exchange and clearing house, CME Europe and CME Clearing Europe, will result in annual savings between $10 million and $12 million. This move will impact 2018 and free up more than $150 million in capital.

CME Group deploys capital to enhance shareholder value. It pays five dividends per year with the fifth being variable based on excess cash flow in the year. The dividend yield over the last six years came in at more than 5%.   
The Zacks Consensus Estimate for 2018 reflects 39.4% increase on 10.7% higher revenues. The consensus mark for top line and bottom line for 2019 indicates a year-over-year increase of 12.2% and 8.9%, respectively. Over the past 30 days, the consensus estimate has been moved 1.2% north for 2018 and 3.1% for 2019.

Long-term earnings growth is currently pegged at 13%, higher than the industry’s average of 9.8%.

Stocks to Consider

Investors interested in finance sector can check out a few top-ranked stocks like Intercontinental Exchange Inc. ICE, Arbor Realty Trust. ABR and Banner Corporation. BANR.

Intercontinental Exchange operates regulated exchanges, clearing houses, and listings venues for financial and commodity markets in the United States, the United Kingdom, Continental Europe, Asia, Israel, and Canada. It delivered a 6.25% positive surprise in the last reported quarter. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arbor Realty Trust invests in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets. It delivered a 2.78% positive surprise in the last reported quarter. The stock sports a Zacks Rank #1.

Banner Corporation as the bank holding company for Banner Bank and Islanders Bank provides commercial banking, and financial products and services to individuals, businesses and public sector entities, primarily in the United States. It came up with a 25.26% beat in the last reported quarter. The stock sports a Zacks Rank #1.

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