Technology

Why Is CME (CME) Up 8.2% Since Last Earnings Report?

It has been about a month since the last earnings report for CME Group (CME). Shares have added about 8.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CME due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

CME Group  reported second-quarter 2020 adjusted earnings per share of $1.63, which beat the Zacks Consensus Estimate by 0.6%. The bottom line decreased 7.4% year over year due to lower clearing and transaction fees. Average daily volume decreased in four out of the six products lines.

Performance in Detail

CME Group’s revenues of $1.2 billion decreased 7.1% year over year. The year-over-year decrease is primarily attributable to lower clearing and transaction fees (down 10.6% year over year),  partially offset by higher market data and information services (up nearly 5% year over year), and other (up nearly 16% from the prior-year period). The top line missed the Zacks Consensus Estimate by 1.1%.

Total expenses decreased 5.1% year over year to $544.8 million during the reported quarter, attributable to lower depreciation and amortization as well as other expenses.

Operating income decreased 8.5% from the prior-year quarter to $637.5 million.

Average daily volume decreased 15.9% year over year to 17.6 million contracts in the quarter. Average rate per contract increased 5.5%.

Financial Update

As of Jun 30, 2020, CME Group had $1.5 billion of cash and marketable securities, down 8.6% from 2019 end. As of Jun 30, 2019, long-term debt of $3.4 billion decreased 8.1% from 2018 end.

As of Jun 30, 2020, the company had total assets worth $117.2 billion, up 55.8% from 2019 end.

Capital Deployment

CME Group paid out $304 million in dividends in the second quarter.  The company has returned about $13.8 billion to shareholders in the form of dividends since the implementation of the variable dividend policy in early 2012.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.29% due to these changes.

VGM Scores

Currently, CME has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise CME has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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