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CME Gains 11% YTD: Time to Buy the Stock at a P/E of 23.82X?
CMECME Group(CME) ZACKS·2025-04-08 17:55

Group 1: Company Performance - CME Group shares have gained 10.7% year to date, outperforming the industry, sector, and S&P 500 composite [1] - CME Group has a market capitalization of 91billion,makingitthelargestfuturesexchangegloballyintermsoftradingvolumeandnotionalvaluetraded[1]−Theaveragenumberofsharestradedinthelastthreemonthswas2.3million[1]Group2:GrowthDrivers−Asolidportfoliooffuturesproductsinemergingmarkets,diversifiedderivativeproductlines,andastrongglobalpresencepositionCMEGroupforgrowth[2]−Increasedelectronictrading,cross−sellingthroughalliances,andastrongliquiditypositionfurtherenhancegrowthprospects[2]−CME′sinvestmentsareyieldingpositiveresults,withafocusonimprovingmarginsthroughcostmanagement[20]Group3:FinancialMetrics−CME′sprice−to−earningsratiois23.3X,whichishigherthantheindustryaverageof22.3X,indicatingthatsharesaretradingatapremium[8]−TheZacksaveragepricetargetforCMEsharesis91 billion, making it the largest futures exchange globally in terms of trading volume and notional value traded [1] - The average number of shares traded in the last three months was 2.3 million [1] Group 2: Growth Drivers - A solid portfolio of futures products in emerging markets, diversified derivative product lines, and a strong global presence position CME Group for growth [2] - Increased electronic trading, cross-selling through alliances, and a strong liquidity position further enhance growth prospects [2] - CME's investments are yielding positive results, with a focus on improving margins through cost management [20] Group 3: Financial Metrics - CME's price-to-earnings ratio is 23.3X, which is higher than the industry average of 22.3X, indicating that shares are trading at a premium [8] - The Zacks average price target for CME shares is 260.89, suggesting a potential upside of 2.2% from the last closing price [11] - The Zacks Consensus Estimate for 2025 earnings is 10.72,reflectinga4.510.72, reflecting a 4.5% year-over-year increase, with revenues projected at 6.4 billion [12] Group 4: Return on Capital - Return on equity for CME was 13.6% in the trailing 12 months, slightly above the industry average of 13.5% [16] - Return on invested capital (ROIC) was around 10% over the last few years, but it was only 0.4% in the trailing 12 months, below the industry average of 5% [18] Group 5: Market Position and Risks - CME Group benefits from increased volatility, which drives trading volume and contributes significantly to revenues from clearing and transaction fees [20] - The company is exposed to concentration risk, heavily relying on trading volumes from interest rates and equities for a significant portion of its revenues [22] - The competitive landscape is intensifying due to regulatory reforms and competition from alternative trading platforms [23] Group 6: Investment Appeal - CME Group's strength lies in organic growth, with increasing electronic trading volume and higher adoption of crypto assets [24] - The company has an impressive dividend history, paying five dividends per year, making it attractive for yield-seeking investors [25] - Despite premium valuation and concentration risk, the growth prospects make CME a compelling addition to investment portfolios [25]