Here's Why Investors Should Hold CME Group (CME) Stock Now
CME Group Inc. CME is well-poised to gain from its strong market position, product launches and higher return on assets.
The company has a decent earnings surprise history. The company beat estimates in three of the last four quarters with the average positive surprise being 3.08%.
CME Group’s trailing 12-month return on assets of 3% is higher than the industry’s 2.7%. This highlights the company's efficient utilization of its assets to generate earnings.
The Zacks Consensus Estimate for 2020 earnings per share is pegged at $7.39, indicating increase of nearly 8.7% from the year-ago reported figure. The expected long-term earnings growth is pegged at 5.3%.
Factors Driving Performance
CME Group’s top line has been improving over the years on the back of higher clearing and transaction fees and market data and information services. The metric witnessed CAGR of 9.4% over the last five years (2014-2019). Notably, the Zacks Consensus Estimate for the company’s 2020 revenues is pegged at $5.19 billion, indicating an increase of 6.7% from the year-ago reported figure. Strong market position with diverse derivative product lines and global reach is likely to drive revenues in the days ahead.
The company remains focused on expanding international presence and address diverse needs of its customers with the launch of various products and services. Its key product launches include the Ultra U.S. Treasury Bond futures and options, expanded crude oil grades, Basis Trade at Index Close (BTIC) transactions, S&P Dividend futures, E-mini Russell 1000 and 2000 futures and SOFR futures contracts.
Recently, it launched Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 futures contracts to cater to clients with greater flexibility to execute equity trading strategies, scale index exposure up or down or more precisely hedge existing equity portfolio positions. Such strategies are likely to accelerate long-term growth investments.
Furthermore, the company’s debt levels have been decreasing over the past years. As of Mar 31, 2020, the company’s long-term debt was $3.5 billion, which decreased 5.4% from the 2019-end level. Moreover, as of Mar 31, 2020, the company’s total debt/ total capital of 11.7 was lower than 12.5 at 2019 end. Also, the company’s times interest earned of 18.8 as on Mar 31, 2020 was better when compared with the 2019-end level figure of 16.1, implying that its earnings are sufficient to cover debt obligations.
By virtue of its sound capital and liquidity position, this Zacks Rank #3 (Hold) largest futures exchange in the world in terms of trading volume as well as notional value traded is engaged in prudent capital deployment. The company has increased its dividend at a six-year (2014-2020) CAGR of 10.4%. Its dividend yield of 2.1% compares favorably with the industry’s figure of 1.5%, thus making the stock an attractive pick for yield-seeking investors.
Shares of CME Group have lost 17.5% on a year-to-date basis, compared with the industry’s decline of 2.9%. Nevertheless, its solid fundamentals are likely to drive shares in the days ahead.
Stocks That Warrant a Look
Some better-ranked stocks from the finance sector include MarketAxess Holdings Inc. MKTX, Equifax Inc. EFX, and International Money Express Inc. IMXI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MarketAxess operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. It surpassed estimates in three of the last four quarters, with the average positive surprise being 1.09%.
Equifax provides information solutions and human resources business process outsourcing services for businesses, governments and consumers. It surpassed estimates in each of the last four quarters, with the average positive surprise being 4.23%.
International Money Express operates as a money remittance services company in the United States, Latin America and the Caribbean. It offers remittance and online payment options, pre-paid debit cards and direct deposit payroll cards. It surpassed estimates in three of the last four quarters, with the average positive surprise being 20.82%.
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Equifax, Inc. (EFX) : Free Stock Analysis Report
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