CME Earnings Preview: Flat Trading Volumes Restrict Revenue Growth

October 26th, 2016 by Trefis Team
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CME Group
 CME Group (NASDAQ:CME) is scheduled to announce its Q3 earnings on Thursday, October 27th.  The consensus estimates suggest that the exchange operator’s revenue and EPS likely remained flat in comparison to the year ago period. We believe this is likely due to the overall trading volumes showing no growth. The increase in trading volumes of metals, energy and interest rate derivatives was offset by the decline in trading volumes of equities, foreign exchange and commodity derivatives. With the company generating around 85% of its overall revenues from transaction services, the growth in the first half of the year was primarily driven by the growth in this segment. The expectations of continuous fluctuations in oil and metal prices owing to demand-supply gap will likely keep the markets volatile, hence driving the trading volumes. Even interest rate derivatives are likely to trade in high volumes with speculation of a rate hike in early 2017. With the possibility of increased volatility in the equities market in future, we expect growth equity derivative volumes. Going forward, we expect trading volumes to rise, thereby propelling the company’s top line.
Our price estimate for CME stands at $104.09, which is roughly in-line with the market.
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Trading Volumes Show Mixed Trends Among Asset Classes
Amid a subdued global macroeconomic environment, gold and silver have attracted investor interest, which has boosted the metal trading volume through the year so far. In addition, the copper market has been volatile because of the slowdown in Chinese economy and reduced demand for the metal.  Continued macroeconomic uncertainty is likely to continue driving near-term demand for gold and silver as safe haven asset, as well as copper demand in China. These factors are likely to drive metals trading volumes in the coming quarters.
The uncertainty around oil prices has continued to drive the energy derivative trading volumes for over a year. Demand-supply gap and OPEC’s unwillingness to cut down production led to increased volatility in the market in the first half of the year. Further, we expect oil prices to fluctuate due to a recent announcement from OPEC around limiting oil production. This should likely drive energy trading volumes.