CME Group (NASDAQ: CME) is scheduled to report its fiscal Q4 2020 results on Wednesday, February 10. We expect CME Group to likely beat the consensus estimates for revenues and earnings. The company reported third-quarter revenues of $1.08 billion – down by 12% y-o-y, driven by a 20% drop in clearing and transaction fees. The exchange has suffered due to lower energy and interest rates contract volumes over the recent quarters, partially offset by a jump in equity index trading volumes. We expect the same to drive the fourth-quarter results. Overall, the CME Group is expected to report marginal growth in full-year 2020 revenues, as compared to the 2019 figure.
Our forecast indicates that CME Group valuation is around $171 per share, which is 11% lower than the current market price of around $191. Look at our interactive dashboard analysis on CME Group’s pre-earnings: What To Expect in Q4? for more details.
(1) Revenues expected to be slightly ahead of consensus estimates
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Trefis estimates CME Group’s fiscal Q4 2020 revenues to be around $1.15 billion, around 5 million above the $1.10 billion consensus estimate. The exchange has seen slight revenue growth in 2020 – cumulative nine months revenues have increased by 1% y-o-y to $3.79 billion from $3.73 billion a year ago. Despite the growth in equity index trading volumes, its interest rate and energy contract volumes have suffered in the last six months of 2020, and we expect the same to be reflected in the fourth-quarter results. This will restrict the full-year 2020 revenues to $4.94 billion – just ahead of the year-ago figure.
The unusual growth in equity index contract volumes and drop in the interest rate and energy contract volumes was due to the impact of the economic slowdown. However, as the economy records some recovery in the subsequent quarters, these trading volumes are expected to normalize. It will likely result in a slight increase in the top-line to $5 billion in FY2021. Our dashboard on CME Group Revenues offers more details on the company’s segments.
2) EPS likely to comfortably beat the consensus estimates
CME Group Q4 2020 adjusted earnings per share (EPS) is expected to be $1.56 per Trefis analysis, almost 15% above the consensus estimate of $1.36. The exchange reported a drop in operating expenses in the third quarter and on a cumulative nine-month basis. We expect the same trend to continue in the fourth quarter, leading to an EPS figure of around $6.26 for full-year 2020. Thereafter, as the economic conditions recover, we expect the earnings to further improve to $6.83 in FY 2021.
(3) Stock price estimate 11% lower than the current market price
Going by our CME Group Valuation, with an EPS estimate of around $6.83 and a P/E multiple of close to 25x in fiscal 2021, this translates into a price of $171, which is 11% below the current market price of around $191.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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