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Why Should You Retain CME Group (CME) in Your Portfolio?

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·4 min read
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CME Group CME has been gaining momentum from its strong global presence, diverse derivative product lines and solid liquidity.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $6.76 and $7.24, indicating year-over-year increase of 0.6% and 7.2%, respectively.

Earnings Surprise History

CME Group has a decent earnings surprise history. It beat estimates in three of the last four quarters and missed in one, with the average being 0.94%.

Zacks Rank & Price Performance

CME Group currently carries a Zacks Rank #3 (Hold). The stock has rallied 18%, outperforming the industry’s increase of 11.6% on a year-to-date basis.

Zacks Investment Research
Zacks Investment Research

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Business Tailwinds

CME Group’s revenues should continue to gain from higher clearing and transaction fees, market data and information services and other revenues. Strong market position with diverse derivative product lines, additional market data distribution channels, increase in custody fees and global reach are likely to drive revenues in the days ahead.

The company witnessed a 35% sequential increase in average daily volume from fourth- quarter end to the first quarter of 2021. First-quarter average daily volume marked the third-highest quarterly figure.

CME Group continues to launch innovative products, tools and services to support customer needs and expand international presence. It had record quarters in Bitcoin futures and silver futures. The introduction of Micro E-mini futures in May 2019 is the most successful product launch by the company.

Both Micro E-mini-NASDAQ and Russell increased more than 100%, while agricultural markets remained active, particularly in options with more than 60% growth in both corn and soybean options average daily volume.

Also, it continued to witness strong non-US customer volumes originating in Europe and Asia with around 6 million per day in the first quarter.

Additionally, CME Group boasts a strong balance sheet with solid cash balance and has excess borrowing capacity for general corporate purposes of around $2.4 billion under its multi-currency revolving senior credit facility at Mar 31, 2021. It exited the first quarter with cash balance of more than $1 billion. Total debt to total capital of 11.5% compares favorably with industry average of 32.4%.

Further, CME Group’s times interest earned, a measure to identify the company’s ability to service debt, of 15.9X is good when compared with the industry average of 10.3X, implying that its earnings are sufficient to cover interest obligations.

Based on operational excellence, this futures exchange boasts a strong balance sheet and cash flow, which enable it to engage in capital deployment strategies. In February 2021, its board of directors hiked its quarterly cash dividend by 6%. Its current dividend yield of 1.7% is higher than the industry average of 1.1%, which makes the stock an attractive pick for yield-seeking investors.

Stocks to Consider

Some better-ranked stocks from the finance sector include Cboe Global Markets, Inc. CBOE, Intercorp Financial Services Inc. IFS and OTC Markets Group Inc. OTCM, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cboe Global’s surpassed estimates in three of the last four quarters and missed in one, with the average beat being 4.45%.

Intercorp Financial surpassed estimates in each of the last four quarters, with the average earnings surprise being 257%.

OTC Markets surpassed estimates in each of the last four quarters, with the average earnings beat being 33.47%.

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CME Group Inc. (CME) : Free Stock Analysis Report

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OTC Markets Group Inc. (OTCM) : Free Stock Analysis Report

Intercorp Financial Services Inc. (IFS) : Free Stock Analysis Report

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