What To Watch For In CME’s Q3 Earnings
CME Group (NASDAQ:CME) has had a robust first half of 2018, as the exchange managed to grow its revenue by 17%, and we expect the growth momentum to continue when it announces its Q3 earnings on October 25. Consensus market estimates call for the company to continue its growth and report revenue of $913 million and adjusted EPS of $1.43. The strong top line growth earlier this year was primarily due to growth in the company’s trading segment, driven by increased volatility in the derivatives market including energy, interest rate, and metals. Although CME’s Q3 average daily volumes slipped by 1% compared the prior year levels, we expect that the multiple interest rate hikes, robust growth in its bitcoin futures trading volume, and its expansion of futures products in emerging markets should drive its Q3 results. Further, CME’s proposed acquisition of NEX Group should broaden its offerings and expand its presence in the European and Asian markets. Consequently, the deal provides decent medium term growth. However, we expect CME to report higher expenses due to its various strategic investments, which should slightly dampen its bottom line in the near term.
We have a $165 price estimate for CME’s stock, which is below the current market price. We have also created an interactive dashboard on what to watch for in CME’s Q3 earnings, which shows our expectations for the company’s earnings. You can modify the key value drivers to see how they would impact the company’s revenues, bottom line, and valuation.
CME remains bullish on its market data and information services segment, with new products in the pipeline with enhanced business intelligence and machine learning capabilities. We expect that customers will continue to use these services even as the company increasingly charges for them. This should help boost its top line going forward.
Multiple recent rate hikes in the year ahead have boosted investor interest in interest rate derivatives, with trading volumes coming in 21% ahead of the levels seen in the first half of 2017. The uncertainty around macro conditions and Fed’s indication of further interest rate hikes should propel this segment in the near term, leading to sustained growth in volumes. Energy derivatives maintained solid volumes with the recent surge in oil prices and OPEC’s recent stance on capping production. We expect the market volatility to sustain in the near term, as the outlook for the restricted production of oil remains uncertain. This should drive growth in trading volumes. Meanwhile, metal derivatives saw 33% growth in trading volumes, as continuous movements in gold and silver prices have continued to boost metals derivative volumes.
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