CME Group (NASDAQ: CME) is scheduled to report its fiscal Q4 2021 results on Wednesday, February 9, 2022. We expect CME Group’s revenues to be in line (just below) with the consensus estimates, while the earnings will likely miss the mark. The company outperformed the street expectations in the last quarter, with net revenues increasing 3% y-o-y to $1.1 billion. It was driven by growth in clearing & transaction fees (trading driven revenues) due to higher average daily volume (ADV) in interest rates and energy contracts. We expect the same trend to continue in the fourth-quarter results.
Our forecast indicates that CME Group’s valuation is $229 per share, which is 7% below the current market price of $249. Our interactive dashboard analysis on CME Group’s Earnings Preview has more details.
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(1) Revenues expected to be in line with the consensus estimates
CME Group’s revenues marginally increased in 2020 to $4.9 billion. It was mainly driven by growth in non-trading revenues, partially offset by lower clearing & transaction fees.
- The clearing & transaction fees contribute approximately 80% of the top-line. While other exchanges witnessed a positive growth in the fees in 2020 due to higher ADV, CME’s figures were actually down. This was due to a drop in ADV in interest rate contracts sub-category and a lower average rate per contract. The same pattern was observed in the first quarter of 2021. That said, the ADV improved in the second and third quarters. Overall, the cumulative nine-month clearing & transaction fees reduced 8% y-o-y to $2.8 billion in 2021. We expect the segment to see some growth in the fourth quarter as the ADV has increased 26% on a year-on-year basis (as per the recently released monthly volume report of January 2022).
- The non-trading income increased 7% y-o-y to $938 million in 2020. Further, the cumulative nine-month figure has seen a marginal drop to $727 million in 2021. We expect it to see some positive growth in the fourth quarter.
- Overall, we expect CME Group’s revenues to remain around $4.7 billion for FY2021.
Trefis estimates CME Group’s fiscal Q4 2021 revenues to be around $1,166 million, in line with the $1,170 million consensus estimate. We expect the fourth-quarter results to see growth in all the revenue segments.
Although the ADV has improved over the last nine months, we expect it to normalize with improvement in the economic conditions. Further, the non-trading revenues are likely to drive growth. Our dashboard on CME Group’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
2) Adjusted EPS is likely to remain below the consensus estimates
CME Group Q4 2021 adjusted earnings per share (EPS) is expected to be $1.60 per Trefis analysis, almost 2% below the consensus estimate of $1.64. The company’s adjusted net income in 2020 was around the same level as the 2019 figure. That said, the profitability numbers suffered in the first two quarters of 2021, before making up for the lost ground in the third quarter. The unusual jump in Q3 was due to higher investment income and a net gain of $343.5 million on the deconsolidation and contribution of the optimization business to a joint venture between CME Group and IHS Markit. Notably, the cumulative nine-month adjusted net income increased 20% y-o-y to $2 billion. We expect the fourth-quarter results to follow the same trend. Overall, the CME group’s annual GAAP EPS is likely to remain around $6.60 for FY2021.
(3) Stock price estimate 7% lower than the current market price
We arrive at CME Group’s valuation, using an EPS estimate of around $6.60 and a P/E multiple of just below 35x in fiscal 2021. This translates into a price of $229, which is 7% below the current market price of around $249.
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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|S&P 500 Return||-1%||-6%||100%|
|Trefis MS Portfolio Return||-1%||-10%||254%|
 Month-to-date and year-to-date as of 2/7/2022
 Cumulative total returns since the end of 2016