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CME Group (CME) Stock Rises 5% YTD: Will the Rally Continue?

CME Group’s CME shares have gained 5.1% year to date, outperforming the industry’s increase of 3.3%. The Finance sector has declined 1.6% in the said time frame. With a market capitalization of $63.6 billion, the average volume of shares traded in the last three months was about 1.5 million.

Global presence, compelling product portfolio, focus on over-the-counter clearing services and solid capital position continue to drive this Zacks Rank #2 (Buy) securities and exchange company.

This largest futures exchange in the world in terms of trading volume as well as notional value traded has a solid history of delivering earnings surprises in the last 10 reported quarters. Its earnings grew 8.2% in the last five years.

CME Group’s ROE for the trailing 12 months was 10.9%, better than the industry average of 10.8%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Can It Retain the Bull Run?

The Zacks Consensus Estimate for 2023 earnings is pegged at $8.73, indicating a year-over-year improvement of 9.5% on 6.8% higher revenues of $5.4 billion. The consensus estimate for 2024 is pegged at $8.86, indicating a year-over-year improvement of 1.5% on 2.8% higher revenues of $5.5 billion. The expected long-term earnings growth rate is pegged at 4.7%.

CME Group has a solid market presence with a 90% market share of global futures trading and clearing services. Increasing electronic trading volume adds scalability and hence leverage to CME Group’s operating model.

Given increased volatility, the increase in trading volume should continue to drive clearing and transaction fees. Increased adoption of a greater number of crypto assets with increased interest across the entire crypto-economy should add to the upside.

Higher non-transactional revenues should boost the top line as well.

CME Group has a solid balance sheet and financial flexibility supporting strategic growth initiatives, including organic market data growth and new product extensions and offerings. Prudent capital deployment continues to enhance shareholders’ value.

CME Group has an impressive dividend history, having increased dividends at a five-year CAGR (2019-2023) of 8%. The dividend yield is 2.5%, better than the industry average of 1.8%, making the stock an attractive pick for yield-seeking investors. Also, CME Group pays five dividends per year, with the fifth being variable, which is based on excess cash flow in the year.

The consensus estimate for 2023 and 2024 earnings has moved up 0.6% and 0.1%, respectively in the past 30 days, implying analysts’ optimism.

Attractive Valuation

CME’s shares are trading at a price-to-earnings multiple of 20.1, lower than the industry average of 22.9. Given solid fundamentals, it is favorable to add a position in the stock before the valuation expands.

Other Stocks to Consider

Some other top-ranked stocks from the finance sector are RLI Corporation RLI, Kinsale Capital Group KNSL and Berkshire Hathaway (BRK.B).

RLI delivered a four-quarter average earnings surprise of 43.50%. Year to date, the insurer has lost 1.8%.

The Zacks Consensus Estimate for RLI’s 2023 earnings indicates a year-over-year increase of 4.1%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale delivered a four-quarter average earnings surprise of 14.77%. Year to date, the insurer has gained 23.8%.

The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings indicates respective year-over-year increases of 32.9% and 19.7%. The company flaunts a Zacks Rank #1 at present.

Berkshire Hathaway delivered a four-quarter average earnings surprise of 20.29%. Year to date, the insurer has gained 3%.

The Zacks Consensus Estimate for BRK.B’s 2023 and 2024 earnings indicates respective year-over-year increases of 35.8% and 1.3%. It presently carries a Zacks Rank #2.

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