On Feb 27, we downgraded derivative exchange
CME Group Inc.
) to Underperform based on its weak top-line growth over the last
Why the Downgrade?
Estimates for CME Group have witnessed a steady decline since
its fourth-quarter 2012 results on Feb 5. The company's fourth
quarter earnings of 63 cents a share were at par with the Zacks
Consensus Estimate, while total revenue of $660.9 million missed
the Zacks Consensus Estimate. Nonetheless, both earnings and
revenue lagged the year-ago results by 11.3% and 10.3%,
Following the release of fourth quarter results, the Zacks
Consensus Estimate for 2013 has gone down 2.8% to $3.15 per
share. The Zacks Consensus Estimate for 2014 also slid 2.2% to
$3.61 per share. With the Zacks Consensus Estimates for both 2013
and 2014 going down, the company now has a Zacks Rank #5 (Strong
Cause for Concern
CME Group has been consistently generating low trading volumes
across asset classes and substantially reduced
clearing-transaction fees, which have been constricting top-line
Low trading activity, currency and interest rate fluctuations
as well as a lack of any growth catalyst further raise a wary
outlook on the operating leverage in the upcoming quarters. The
gradual clearance of regulatory clouds also indicates higher
capital expenditure on infrastructure modifications.
The ongoing consolidation in the industry has raised caution
over the sustainability factor of the sturdy groups and poses an
uphill battle for companies trying to gain market share. Amid a
frail operating environment, CME Group also remains exposed to
The recently proposed merger of
NYSE Euronext Inc.
) - both Zacks Rank #3 (Hold) stocks - is liable to snip off
CME Group's market share upon successful completion.
Other Financial Stocks That Warrant a Look
While we prefer to avoid CME Group until we see some
improvement in its performance,
), carrying a Zacks Rank #1 (Strong Buy) appears impressive.
CME GROUP INC (CME): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis
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