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Why Is CME (CME) Down 4.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for CME Group (CME). Shares have lost about 4.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CME due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

CME Group Q4 Earnings and Revenues Beat Estimates

CME Group reported fourth-quarter 2018 adjusted earnings per share of $1.77, beating the Zacks Consensus Estimate of $1.75. Moreover, the bottom line improved 58% year over year.

The quarter witnessed increased volatility and higher customer demand for diverse risk management products driving strong trading volumes, exceeding 20 million contracts per day.

Net income came in at $1.09 per share, which plunged 87% year over year.

Performance in Detail

CME Group’s revenues of $1.2 billion increased 37.4% year over year. The top line beat the Zacks Consensus Estimate by 6.5%. Increase in revenues can be attributed to higher market data and information services (up 36.4% year over year), access and communication fees (up 27.6% from the year-ago quarter) as well as other (up 80.8% from the prior-year period).

Total expenses increased 61.6% year over year to $586.7 million during the reported quarter, attributable to higher compensation and benefits, technology expenses, licensing and other fee agreements, professional fees and outside services, depreciation and amortization as well as other.

Operating income improved 21% from the prior-year quarter to $649.9 million.

Average daily volume improved 31% year over year to 20.8 million contracts driven by higher volumes across four of the six product lines. Average rate per contract rose in five of the four product lines.

Full-Year Highlights

Adjusted earnings per share of $6.82 beat the Zacks Consensus Estimate of $6.80. Moreover, the bottom line improved 43% year over year. CME Group’s revenues of $4.3 billion increased 18.2% year over year. The top line beat the Zacks Consensus Estimate of $4.1 billion.

Financial Update

As of Dec 31, 2018, CME Group had $1.4 billion of cash and marketable securities, which plunged 27.8% from 2017 end. As of Dec 31, 2018, long-term debt of $3.8 billion increased 71.4% from 2017 end. As of Dec 31, 2018, the company had total assets worth $77.5 billion, up 2.2% from $75.8 billion at 2017 end.

Dividend Update

In 2018, the company paid dividends worth $1.6 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10% due to these changes.

VGM Scores

Currently, CME has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CME has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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