CME Group CME is well-poised for growth driven by diversified derivative product lines, solid global presence, focus on over-the-counter clearing services and strong capital position.
CME Group boasts a market share of 90% of the global futures trading and clearing services. The company also remains focused on expansion of futures products in emerging markets, non-transaction related opportunities and OTC offerings. All these together should continue to drive the top line that increased at a five-year CAGR of 6.7%.
Shares of CME lost 12.3% in the first nine months, underperforming the industry’s increase of 20.3%. Nonetheless, the company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.
The company’s impressive inorganic growth story is backed by acquisitions made over the past many years. The buyout of London-based NEX Group plc should help the company emerge as a cross-border trading powerhouse while generating $200 million in run-rate cost synergies annually by the end of 2021.
CME Group intends to continue investing in several areas like organic market data growth, product extensions and offerings for clients’ convenience to trade complex spread options on the box electronically. The investments made in the past are already reaping benefits.
The company has a decent history of beating estimates in the last four quarters with the average being 1.27%.
CME Group effectively deploys capital banking on its healthy capital position. In a year, the company pays five dividends with the fifth being variable depending on excess cash flow that year. In August 2019, CME hiked divided by 7% leading to 60% increase in annual dividend, making it an attractive pick for yield-seeking investors.
However, some factors that pose concerns include products’ exposure to volatile interest rate, currency fluctuation, strict government regulations and limited credit availability in the current unstable capital and credit markets. Increase in total expense is also a major concern for the company. CME Group’s expenses increased 27% over the last five years.
Some Other Finance Sector Players
Some other finance sector stocks include Hallmark Financial Services HALL, Cboe Global Markets CBOE and Nasdaq NDAQ.
Hallmark Financial underwrites markets, distributes and services property and casualty insurance products in the United States. The company came up with average four-quarter positive surprise of 97.50%.
Cboe Global Markets operates as an options exchange in the United States through its subsidiaries. The company came up with average four-quarter positive surprise of 9.19%.
Nasdaq provides trading, clearing, marketplace technology, regulatory, securities listing, information, and public and private company services worldwide. The company came up with average four-quarter positive surprise of 1.92%.
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