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Bull of the Day: CME Group (CME)


With a strong global economy and a rising rate environment domestically, now is a great time to be investing in U.S. exchanges. We are seeing strength in a number of these companies, but one stock that sticks out right now is CME Group Inc. (CME), operator of the world’s largest futures exchange.

CME Group as it is today was formed through the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade in 2017. The company also operates the New York Mercantile Exchange, the New York Commodity Exchange, and the Kansas City Board of Trade. CME handles about 3 billion contracts worth approximately $1 quadrillion, annually.

Shares of CME have moved about 9% higher over the past 12 weeks. Meanwhile, earnings estimates for the company’s upcoming fiscal year have been on the rise, underscoring optimism over rising interest rates. CME Group is currently sporting a Zacks Rank #2 (Buy).

Latest Earnings Results and Outlook

CME Group most recently reported earnings on October 26. The company posted third-quarter profits of $1.19 per share, beating the Zacks Consensus Estimate by three cents and improving by over 13% year-over-year. Revenues of $891 million edged out the Zacks Consensus Estimate of $890 million and grew 6% from the year-ago period.

CME noted that its strong results were primarily driven by higher trading volumes. Specifically, its options business remained solid in the quarter. Average daily volume rose 10% year-over-year, with growth recorded in five out of six product lines.

Here’s a snapshot of the company’s upcoming earnings estimate and recent revisions:

As we can see, the trend for the current quarter has not been favorable. However, estimates have been on the rise for both the next quarter and full fiscal year, indicating that analysts are bullish on the company’s 2018 prospects.

Key Stats and Fundamentals

CME currently holds a “B” grade for Momentum in our Style Scores system, which is supported by its recent price surge and soaring earnings estimates. Elsewhere, the stock has a meager “D” grade for Growth, but investors still have some modest growth projections to be excited about.

For example, current estimates are calling for the company to grow its earnings by about 30.5% in fiscal 2017, with total sales expected to come in roughly 7% higher than 2017’s projected totals. CME is also witnessing cash flow growth of a respectable 15% right now. The firm is generating about $5.21 in cash per share, underscoring its remarkable balance sheet.

CME owes much of its success to its organic growth. The company holds about 90% market share of global futures trading and clearing services, and it remains committed to meet the changing needs of its clients in an evolving global marketplace. That means capitalizing on new ideas, like it has with the launch of bitcoin futures, and touching up on traditional ideas, like it has with the Ultra 10-year contract.

CME is currently trading at about 24x forward earnings, which means the stock is not exactly cheap. But the stock also has a PEG ratio of 2.64, so investors are getting a decent price for its projected earnings growth. The firm also offers investors a respectable 1.74% dividend.

Besides being a dominant leader in an industry that should only stand to benefit from the market’s current climate, CME has an ideal combination of traits—rising share prices and rising earnings estimates. I like this stock a lot for 2018.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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