CME Group‘s (NASDAQ:CME) stock has witnessed an impressive 20.6% year-to-date surge, surpassing the industry’s overall growth of 15.6%. In comparison, the Finance sector experienced a 6.3% increase. The company boasts a market capitalization of $72.9 billion, with an average trading volume of 1.5 million shares over the past three months.
The company’s global presence, diverse product portfolio, emphasis on over-the-counter clearing services, and strong capital position have been pivotal factors driving its success. CME Group has seen consensus estimates for 2023 and 2024 earnings rise by 4 cents and 3 cents, respectively, in the past 30 days, reflecting positive sentiment among analysts.
As the world’s largest futures exchange by trading volume and notional value traded, CME Group has a solid track record of delivering earnings surprises in the last 11 consecutive quarters. Over the past five years, the company has witnessed an 8.2% growth in earnings.
Can This Momentum Be Sustained?
The Zacks Consensus Estimate for CME Group’s 2023 earnings stands at $9.04, indicating a 13.4% increase on 8.7% higher revenues of $5.5 billion. Looking ahead to 2024, the consensus estimate for earnings is $9.16, representing a 1.3% rise on revenues of $5.6 billion, which are expected to be 2.7% higher.
The long-term earnings growth rate is currently pegged at 7.3%, with a projected three-year (2022-2025) CAGR of 4.2%.
The company’s revenue from clearing and transaction fees, a major contributor to its top line, is poised to benefit from increased trading volumes, driven by heightened market volatility. Projections indicate a three-year CAGR (2022-2025) of 4.5% for clearing and transaction fees.
CME Group’s dominance in the market, with a staggering 90% share of global futures trading and clearing services, coupled with the growing popularity of electronic trading and a rising interest in a wider range of crypto assets, is expected to drive trading volumes higher.
Additionally, higher non-transactional revenues are likely to bolster the top line. Over the past five years, the company has seen its top line improve at a compound annual growth rate (CAGR) of 6.6%. Looking forward, a three-year (2022-2025) CAGR of 4.6% is anticipated.
CME Group’s robust financial position and flexible balance sheet provide essential support for strategic growth initiatives, including organic market data expansion, the introduction of new products, and capital deployment.
Thanks to its operational excellence, CME Group has consistently increased dividends, achieving a five-year CAGR (2019-2023) of 8%. With a dividend yield of 2.2%, surpassing the industry average of 1.6%, the stock is an appealing choice for yield-seeking investors. Moreover, CME Group disburses dividends five times a year, with the fifth payout being variable and dependent on excess cash flow generated during the year.
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