CME Group (NASDAQ:CME) will announce its Q1 2012 earnings on Thursday. The exchange saw a decline in trading volumes this quarter, following the pressure felt last quarter, when it reported revenues of $736.5 million. This decline in trading is largely attributable to overall uncertainty in the capital markets. We expect this decline to have a negative impact on the company’s earnings this quarter, as well as competitors such as NYSE Euronext (NYSE:NYX) and Nasdaq OMX (NASDAQ:NDAQ).
The damage caused by the bankruptcy filing by global financial derivatives broker MF Global has led to a decline in the reputation of the Chicago Mercantile Exchange, which directly affects trading volumes. The company will look to improve oversight of its member firms as well as provide additional protection going forward.
Expansions and Acquisitions
CME Group is looking to expand its global footprint through product and technology alliances, and has had discussions about taking a minority interest in the Tokyo Commodity Exchange. Such as partnership would allow it to list its products on Tocom and boost revenues from commodities transactions, market data, access and communication services revenues (see CME Group in Talks to Acquire a Stake in Tokyo Commodity Exchange). CME Group also plans to open a futures exchange in London which will allow it to expand in Europe. The company even submitted an initial bid for the London Metal Exchange in order to complement its London-based clearinghouse. Currently, Commodity and Metal Contracts account for 19% of our price estimate for CME group’s stock, and would be positively impacted by either of these deals.
We will also be listening for any insights offered by CME Group president Phupinder Gill, who will take over as CEO following the announcement by current CEO Craig Donohue that he will step down at the end of the year.
We have a price estimate of $285 on CME Group’s stock, about 5% above the current market price.