On Aug 14, 2013, we upgraded derivative exchange -
CME Group Inc.
) to Outperform based on its improved growth momentum, which
augurs sustained long-term growth.
Why the Upgrade?
CME Group has witnessed some moderation since its
second-quarter 2013 results on Aug 1. Both operating earnings of
93 cents per share and total revenue of $816.1 million topped the
Zacks Consensus Estimate of 90 cents and $806 million,
respectively, during the second-quarter.
Both earnings and revenues exceeded the year-ago results by
25.7% and 2.5%, respectively. Overall, CME Group delivered
positive earnings surprises in all of the last 4 quarters with an
average beat of 2.4%.
A surge of 15% in average daily volume along with higher
clearing and transaction fees (accounting for about 85% of the
total revenue)boosted results, partially offset by lower average
rate per contract. Further, a 5.6% decline in operating expenses
helped operating margin rebound to its historical highs of above
60% to 62.2% from 59.0% in the year-ago quarter.
Following the release of the second-quarter results, the Zacks
Consensus Estimate for 2013 and 2014 remained intact at $3.17 and
$3.67 a share, respectively, in the last 7 days. Meanwhile, the
current estimates reflect 4.8% year over year growth in 2013 and
15.7% upsurge in 2014. With the Zacks Consensus Estimates for
both 2013 and 2014 remaining steady, the company now has a Zacks
Rank #3 (Hold).
What is the cause for the strong positive bias on the company?
The sustained results in the first half of 2013 have instilled
market confidence in the company. This is also reflected by the
recent upgrade in outlook to stable from negative by S&P
CME Group has the potential to reach new heights once the
market stabilizes with its low-risk debt profile, improved
operating cash flow and low capital expenditure. Moreover, the
company's diversified product portfolio and strategic alliances
bode well for improving operating leverage.
Other Financial Stocks That Warrant a Look
While CME Group shows no clear directional pressure in the
near term, other outperformers of the financial sector including
MarketAxess Holdings Inc.
Fleetcor Tech Inc.
Gain Capital Holdings Inc.
) carrying a Zacks Rank #1 (Strong Buy) appear impressive.
CME GROUP INC (CME): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis
GAIN CAP HLDGS (GCAP): Free Stock Analysis
MARKETAXESS HLD (MKTX): Free Stock Analysis
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