CME Group (NASDAQ: CME) is scheduled to report its fiscal Q1 2021 results on Wednesday, April 28. We expect CME Group to edge past the consensus estimates for revenues, while the earnings are likely to miss expectations. CME, the world’s largest financial derivatives exchange, managed to outperform the consensus estimates in its fourth-quarter results mainly driven by higher ADV (average daily volume) on a sequential basis. However, the ADV figure was down on a year-on-year basis. Further, the company has reported negative revenue growth in each of the last three quarters as compared to the year-ago period, mainly due to lower clearing & transaction fees. We expect the same trend to drive the first-quarter FY2021 results as well.
Our forecast indicates that CME Group’s valuation is $196 per share, which is 5% below the current market price of around $207. Look at our interactive dashboard analysis on CME Group’s Pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be slightly ahead of the consensus estimates in Q1
Trefis estimates CME Group’s fiscal Q1 2021 revenues to be near $1.27 billion, slightly above the $1.26 billion consensus estimate. CME Group’s total revenues of $4.88 billion for the full year 2020 were marginally ahead of the 2019 figure. While other exchanges like NASDAQ benefited from higher trading volumes in the securities market due to the impact of the Covid-19 crisis, CME was not able to capitalize on this trend. It could be attributed to a slight drop in contract volume due to lower ADV in interest rate contracts and a decrease in average rate per contract. Both the above factors restricted the clearing & transaction fees in the year, which generates roughly 80% of the total revenues. We expect the same momentum to continue in the first quarter of FY2021.
The exchange did see a jump in equity contracts trading volumes in 2020, however, we expect it to normalize with the recovery in the economy. Further, the positive growth in the non-trading revenues is likely to continue in FY2021 as well. Overall, CME group revenues are likely to remain around the 2020 level of $4.88 billion in the year. Our dashboard on CME Group’s revenues offers more details on the company’s segments.
2) EPS likely to miss the consensus estimates
CME Group’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.66 per Trefis analysis, almost 5% below the consensus estimate of $1.75. The company’s adjusted net income of $2.11 billion in 2020 was marginally lower than the 2019 figure. This resulted in an EPS of $5.88, down from $5.93. Overall, the net income margin slightly decreased in the year from 43.5% to 43.1%. We expect the same momentum to continue in the FY2021 Q1 results.
CME Group’s net income is likely to improve in the year driven by lower operating expenses. This will enable CME to report an EPS of around $6.63 in FY2021.
(3) Stock price estimate 5% lower than the current market price
Going by our CME Group’s valuation, with an EPS estimate of $6.63 and a P/E multiple of just below 30x in fiscal 2021, this translates into a price of $196, which is 5% above the current market price of $207.
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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