What To Expect From CME Group Stock?

CME: CME Group logo
CME Group

CME Group’s stock (NYSE: CME) lost 51% in 2022, while the S&P500 decreased 19% over the same period. Further, at its current price of $170 per share, CME is trading 17% below its fair value of $206 – Trefis’ estimate for CME Group’s valuationThe company surpassed the consensus estimates in the third quarter of 2022, with total revenues increasing by 11% y-o-y to $1.2 billion. The growth was driven by a 14% rise in clearing & transaction fees and a 6% improvement in market data & information services revenues. Notably, the clearing & transaction fees benefited from a 26% rise in the aggregate average daily volume (ADV). On the cost front, total expenses as a % of revenues decreased in the quarter. However, the effect was more than offset by a significant drop in total non-operating income from $482 million to $141 million. Overall, the adjusted net income was reduced by 28% y-o-y to $671 million.

The company’s top line grew 8% y-o-y to $3.8 billion in the first nine months of 2022. It was primarily due to a 12% rise in clearing & transaction fees, followed by a 5% increase in market data & information services. The growth in clearing & transaction fees was driven by higher trading activity – aggregate ADV jumped 23% y-o-y over the same period. Despite the revenue growth, the firm posted a marginal improvement in the adjusted net income to $2.03 billion.

The firm recently released its fourth quarter volumes, with Q4 quarterly ADV increasing by 6% y-o-y. We expect the fourth quarter results to be on similar lines as the last quarter. Overall, CME Group revenues are estimated to touch $5.04 billion in FY2022. Additionally, CME’s adjusted net income is likely to touch $2.9 billion in the year. This coupled with an annual EPS of $7.99 and a P/E multiple of just below 26x will lead to a valuation of $206.

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 Returns Jan 2023
MTD [1]
YTD [1]
Total [2]
 CME Return 1% 1% 47%
 S&P 500 Return -1% -1% 70%
 Trefis Multi-Strategy Portfolio 1% 1% 216%
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[1] Month-to-date and year-to-date as of 1/6/2023
[2] Cumulative total returns since the end of 2016

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