CME Group’s stock (NYSE: CME) has lost 1% YTD, while the S&P500 is down 12% over the same period. Further, at its current price of $226 per share, it is trading 7% below its fair value of $243 – Trefis’ estimate for CME Group’s valuation. The exchange posted better than expected earnings in the recently released first-quarter results, with net revenues increasing by 7% y-o-y to $1.35 billion. This could be attributed to slight growth in clearing and transaction fees. Total average daily volume (ADV) was 25.9 million contracts in Q1 – up 19% y-o-y, primarily driven by higher equity indexes and interest rate contracts. However, the average rate per contract (RPC) witnessed a marginal decrease. Overall, the adjusted net income increased 22% y-o-y to $702 million. It was partly because of revenue growth and partly due to a drop in total expenses as a % of revenue from 42% to 36%.
The company’s net revenues decreased 4% y-o-y to $4.7 billion in 2021. The drop was due to a decrease in clearing & transaction fees, and lower other revenues, partially offset by a 6% rise in the market data & information services category. While the ADV improved 3% y-o-y in the year, it was more than offset by a 5% drop in the RPC. That said, the adjusted net income still improved 24% y-o-y to $2.6 billion. It was due to a slight decrease in the total expenses as a % of revenues, coupled with higher investment income and higher equity in net earnings of unconsolidated subsidiaries.
The securities market has seen a significant spike in trading volumes since the first quarter of 2020. However, we expect the trading volumes to normalize over the subsequent quarters, with a recovery in the economy. That said, the non-trading revenues are likely to drive growth for the company. Overall, CME Group revenues are expected to touch $5.1 billion in FY2022. Additionally, CME’s adjusted net income is likely to grow 10% y-o-y to $2.9 billion in the year. This coupled with an annual EPS of $8.05 and a P/E multiple of just above 30x will lead to the valuation of $243.
|S&P 500 Return||-8%||-12%||87%|
|Trefis Multi-Strategy Portfolio||-7%||-14%||236%|
 Month-to-date and year-to-date as of 4/29/2022
 Cumulative total returns since the end of 2016