Will Improved Top Line Aid CME Group's (CME) Q4 Earnings?
CME Group Inc. CME is set to report fourth-quarter 2017 earnings on Feb 1 before the market opens. Notably, the company delivered a positive surprise in all the last four quarters.
Let’s see, what is in store for the company this yet-to-be reported quarter.
CME Group’s results in the fourth quarter are expected to have benefited from expansion of futures products in the emerging markets, non-transaction related opportunities, OTC offerings and options business. The company launched Bitcoin futures last month.
The top line has likely improved on higher clearing and transaction fees as well as access and communication fees. The Zacks Consensus Estimate for clearing and transaction fees is pegged at $755 million while the same for access and communication fees stands at $25.95 million. Also, the company’s initiative to accelerate organic market data growth will drive its top line. The Zacks Consensus Estimate for market data and information services is pegged at $96 million.
For the fourth quarter of 2017, average daily volumes (ADV) were 15.9 million contracts, having declined 2% year over year as three product lines witnessed lower volumes. Interest Rates, Equity Indexes and Energy volumes decreased 4%, 8% and 4%, respectively. However, a respective improvement of 7% in Foreign exchange and Agricultural Commodities volume, plus a 26% rally in Metals volume limited this downside.
However, license fees are estimated to have increased on the back of transfer of the Russell products in July 2017 and aggregate changes in licenses. Management estimates the metric to have grown 10-15% year over year in the second half of last year.
Management projects adjusted total operating expenses guidance excluding licensing fees to be $1.08 billion in 2017, flat with the 2016-level.
The Zacks Consensus Estimate for the fourth quarter is pegged at $1.10 per share on $883.6 million revenues, reflecting a 3.51% decline in the bottom line and a 3.21% top-line decrease, both on a year-over-year basis.
What Our Quantitative Model Predicts
Our proven model does not conclusively show that CME Group is likely to beat estimates this quarter. This is because a stock needs to have the right combination of the two main ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for an earnings beat. But that is not the case here as elaborated below.
Zacks ESP: CME Group has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
CME Group Inc. Price and EPS Surprise
CME Group Inc. Price and EPS Surprise | CME Group Inc. Quote
Zacks Rank: CME Group carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Some investment managers worth considering from the finance sector with the right combination of elements to beat on earnings this time around are as follows:
American Financial Group, Inc. AFG has an Earnings ESP of +1.21% and a Zacks Rank of 2. The company is slated to report fourth-quarter earnings on Jan 31.
Apollo Global Management, LLC APO has an Earnings ESP of +3.08% and is a Zacks #2 Ranked player. The company is scheduled to announce fourth-quarter earnings on Feb 1.
American Equity Investment Life Holding Company AEL has an Earnings ESP of +2.99% and is a #2 Ranked player. The company will release fourth-quarter earnings on Feb 7.
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