On Tuesday, shares of CME Group Inc. (CME) reached a 52-week high of $65.49. The momentum was driven by improved volumes and fair liquidity, led by a reduction in debt during the first quarter of 2013. CME Group delivered positive earnings surprises in the last 4 quarters with an average beat of 5.0%.
Yesterday’s closing price represents a strong one-year return of about 24.7% and a year-to-date return of about 30.7%. The Nasdaq index jumped 23% and 17.9% respectively during the same period. Average volume of shares traded over the last three months stands at approximately 1673.7K.
The share price of this Zacks Rank #3 (Hold) stock has been experiencing a rising trend ever since the company reported its first-quarter 2013 earnings on May 2. CME Group reported operating earnings per share of 73 cents, at par with the Zacks Consensus Estimate. However, results lagged the year-ago quarter’s earnings of 80 cents a share.
The year-over-year downside reflected a 7.2% decline in revenues driven by deterioration in clearing and transaction fees along with lower revenue from market data and information services. These were marginally offset by a 1% increase in average daily volumes.
Nevertheless, CME Group has been enforcing strict expense control as reflected by a 3.2% decline in total operating expenses in the first quarter of 2013, while non-operating expenses remained at par with the year-ago figure. Total expenses are further projected to be below 5% for 2013.
Overall, despite relatively weak results, the company has been stacking adequate cash, which not only supports debt reduction but also paves the way for effective capital deployment. This should further confidence among investors.
Meanwhile, valuation looks reasonable for CME Group. The shares are trading at a 7% premium to the peer group average on a forward price-to-earnings basis, although on a price-to-book basis the shares are trading at a 66.1% discount to the peer group average. Return on equity and return on assets are 4.6% and 2.6%, respectively, below the peer group average. However, the estimated long-term growth is pegged at 12.6%, higher than the peer group average of 12.0%.
Other stocks in the financial sector that warrant a look include CBOE Holdings Inc. (CBOE), XL Group Plc (XL) and Mitsubishi UFJ Financial Group Inc. (MTU). All these stocks carry a Zacks Rank #1 (Strong Buy).
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