CME Group (NASDAQ: CME) is scheduled to report its fiscal Q2 2021 results on Wednesday, July 28. We expect CME Group to top the consensus estimates for revenues and earnings. CME, the world’s largest financial derivatives exchange, managed to surpass the consensus estimates in the last quarter, despite an 18% y-o-y drop in net revenues. The top-line suffered due to lower clearing and transaction fees due to lower ADV (average daily volume) on a year-on-year basis. That said, we expect the clearing & transaction fees to see some improvement in the second quarter as compared to the year-ago period, driven by some growth in quarterly ADV.
Our forecast indicates that CME Group’s valuation is around $212 per share, which is at the same level as the current market price of around $212. Look at our interactive dashboard analysis on CME Group’s pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to be ahead of the consensus estimates in Q2
Trefis estimates CME Group’s fiscal Q2 2021 revenues to be around $1.27 billion, 8% above the $1.18 billion consensus estimate. The exchange posted a slight drop in its clearing & transaction revenues in 2020, unlike its peers, because of a slight drop in contract volume due to lower ADV in interest rate contracts and a decrease in average rate per contract. This restricted its revenues to $4.88 billion in 2020 – just ahead of the 2019 figure. The same trend continued in the first quarter of FY 2021 also, with clearing & transaction fees declining by 21% y-o-y. However, we expect the fees to see some improvement in the second quarter due to 25% y-o-y higher ADV in interest rate contracts (as per the latest monthly volume report).
CME Group’s interest rate contracts ADV are likely to normalize with the recovery in the economy. Further, the non-trading revenues are likely to continue their growth trajectory in FY2021 as well. Overall, we expect the CME revenues to touch $5.1 billion in the year – 4% ahead of the 2020 figure. Our dashboard on CME Group’s revenues offers more details on the company’s segments.
(2) EPS likely to beat the consensus estimates
CME Group’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.78 per Trefis analysis, almost 11% above the consensus estimate of $1.61. The company’s profitability figures slightly decreased in 2020, due to a marginal drop in net income margin. Further, its operating expenses as a % of revenues increased in the first quarter of 2021, due to higher compensation costs. We expect the same momentum to continue in the FY2021 Q2 results.
CME Group’s net income margin is likely to increase from 43.1% to 49.1% in 2021, leading to an adjusted net income of $2.5 billion. This will enable CME to report an EPS of around $6.94 in FY2021.
(3) Stock price estimate is largely around the current market price
Going by our CME Group’s valuation, with an EPS estimate of around $6.94 and a P/E multiple of just below 31x in fiscal 2021, this translates into a price of $212, which is at the same level as the current market price of around $212.
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
Think Bitcoin could disrupt the banking industry? Looking for upside from Bitcoin adoption, without buying into the cryptocurrency itself? You can find more about our theme on Cryptocurrency Stocks here.