CME Group Inc. CME is well-poised to gain from continuous top-line growth and strategic initiatives.
The company has a decent earnings surprise history. It has a trailing four-quarter positive earnings surprise of 3.08%, on average.
The Zacks Consensus Estimate for 2020 earnings per share is pegged at $7.73, indicating an improvement of 13.7% from the year-ago reported figure.
Factors at Play
CME Group continues to benefit on the back of improved top line. Revenues have witnessed a CAGR of 9.4% over the past five years (2014-2019). We believe the company’s strong global presence courtesy of diverse derivative product lines is likely to drive revenues in the days ahead.
Moreover, the company has been striving to introduce enhanced futures products in emerging markets. Its non-transaction related opportunities and over the counter (OTC) offerings are gaining traction as well. The company has also ventured into the global crude oil market. However, the COVID-19 pandemic is putting the global oil market under pressure, which is already grappling with declining demand and oversupply issues.
Furthermore, the company’s initiatives to get rid of loss-making units bode well. Last year, CME Group decided to divest NEX Exchange to Aquis Exchange plc, as it had been incurring losses. Apart from providing a boost to the bottom line, we believe such actions are likely to accelerate the company’s long-term growth.
Additionally, the company’s improved liquidity position has resulted in a strong balance sheet and cash flows. It has sufficient cash reserves to meet debt obligations. Evidently, cash and cash equivalents came in at $851.7 million, while there is no short-term debt. Notably, as of Mar 31, 2020, the company’s total debt to total capital of 11.7% is lower than its figure of 12.5% at 2019-end. This is also indicative of the company’s strong solvency position.
By virtue of its solid operational performance, the company has increased dividend payments at a five-year CAGR of 9.8%. Its dividend yield of 1.8% compares favorably with the industry’s figure of 1.5%, thus making the stock an attractive pick for yield seeking investors.
Further, the company’s shares are trading cheap presently. Its price to earnings ratio is 24.7, lower than the industry average of 25.7. Undervalued stocks with strong fundamentals and growth potential are always viable investment options.
Shares of this Zacks Rank #2 (Buy) company have inched up 0.1% in a year compared with the industry’s growth of 12.5%. Nevertheless, we believe that the company’s strong fundamentals are likely to drive its shares going forward.
Other Stocks to Consider
Some other top-ranked stocks in the same space include MarketAxess Holdings Inc. MKTX, Intercontinental Exchange, Inc. ICE and Cboe Global Markets, Inc. CBOE.
MarketAxess operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. The company delivered a positive earnings surprise of 3.70% in the last reported quarter. It sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cboe Global operates as an options exchange in the United States. The company delivered a positive earnings surprise of 7.14% in the last reported quarter. The company carries a Zacks Rank #2.
Intercontinental Exchange operates regulated exchanges, clearing houses, and listings venues for commodity, financial, fixed income, and equity markets in the United States, the U.K., European Union, Singapore, Israel, and Canada. The company delivered a positive earnings surprise of 4.07% in the last reported quarter. The company has a Zacks Rank #2.
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