On May 15, 2014, Zacks Investment Research downgraded
CME Group Inc.
) to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold).
Why the Downgrade?
CME Group has been witnessing downward estimate revisions on the
back of sluggish growth outlook, given the lack of any significant
growth catalyst and intense competition, which escalate operational
and financial risks. The company also delivered negative earnings
surprises in 2 of the last 4 quarters with an average beat of
Additionally, this derivative exchange underperformed the
one-year Nasdaq index, which posed growth of 19.3% against 11.7%
clocked by the company.
On May 1, CME Group reported first-quarter 2014 operating
earnings per share of 83 cents, which was in line with the Zacks
Consensus Estimate but higher than the prior-year quarter figure by
A year-over-year top-line rise of about 8% was
lower-than-expected due to lower average rate per contract and
reduced revenues from access and communication fees. While most of
the upside was driven by 9% growth in volumes, these constituted
mostly lower-priced products across asset-class that require higher
volume discounts. Moreover, total expense rose by about 3%.
Going forward, higher capital expenditure projected by
management further raises concern. Additionally, CME Group's
diversified product portfolio is significantly exposed to extreme
interest rate volatility, stringent regulations and limited credit
availability in the current unstable capital and credit
Overall, weak fundamental growth prospects, regulatory
challenges in the U.S. and Europe as well as sluggish market
conditions have been failing to signal any positive investor
sentiment at the moment.
Meanwhile, the Zacks Consensus Estimate for 2014 and 2015
declined 3.6% and 3.7% to $3.44 per share and $3.91 a share,
respectively, in the last 30 days. No upward revision in estimates
was witnessed for both these years.
Moreover, the Most Accurate estimate for CME Group's 2014 and
2015 earnings currently stand at $3.40 a share and $3.90 a share,
respectively, resulting in an
of -0.3% for both the years, and reflecting a slow growth
Other Worthy Financial Stocks
While we prefer to avoid CME Groupfor the time being, some
better-ranked financial stocks such as
Ladder Capital Corp
Euronet Worldwide Inc.
Fidelity National Information Services Inc.
) are worth considering. All these stocks sporta Zacks Rank #1
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CME GROUP INC (CME): Free Stock Analysis Report
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