On January 28, we reiterated our Neutral recommendation on
CME Group Inc.
) based on the sluggish trading volumes across segments, although
the expense management and liquidity remain impressive.
Why the Reiteration?
Estimates for CME Group have been witnessing a downward trend
ever since it reported its third quarter results in October last
year. The company's third quarter top line of $683.2 million
missed the Zacks Consensus Estimate of $685.0 million, although
earnings per share of 70 cents came in a penny higher than the
Zacks Consensus Estimate. The company has outperformed estimates
in three of the last four quarters, leading to an average
surprise of 2.4%.
Over the last 90 days, the Zacks Consensus Estimate for 2012
has edged down 0.7% to $3.03 per share. The Most Accurate
estimate for CME Group's 2012 earnings also stands at $3.03
cents, resulting in an Earnings Surprise Prediction (ESP) of
0.0%. ESP is a leading indicator of an expected positive earnings
surprise for shares. As a result, the company carries a Zacks
Rank #3 (Hold).
The Zacks Consensus Estimate for 2013 has also declined
modestly (down 4.1% to $3.24 per share). Lower trading volumes
continue to cast a cautious outlook for most of 2013 as well. CME
Group is slated to release its fourth-quarter 2012 results after
the closing bell on February 5, 2013.
We believe that CME Group's efforts to promote, expand and
cross-sell its core exchange-traded business through strategic
alliances, meaningful acquisitions, newer product initiatives
along with its global presence should generate a decent growth in
the long run. Nevertheless, currency fluctuations and interest
rate volatility pose operational risks.
Alongside, the recently proposed merger of
NYSE Euronext Inc.
) is liable to snip off CME Group's market share upon successful
completion, adding to the already intense competitiveness. Hence,
the near term outlook seems grim and may continue to dampen the
company's operating leverage and margins until the derivative
markets gain traction.
Other Stocks to Consider
While we prefer CME Group in the exchange industry based on
its fundamental strength, other stocks such as
CBOE Holdings Inc.
), which carries a Zacks Rank #2 (Buy), is worth a look.
CBOE HOLDINGS (CBOE): Free Stock Analysis
CME GROUP INC (CME): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
NYSE EURONEXT (NYX): Free Stock Analysis
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