CME Group’s stock (NYSE: CME) has shown minimal gains year-to-date compared to the S&P 500, trading below its fair value estimate of $224 per share. Despite this, the stock has seen a 15% increase from early January to now, with returns of 25% in 2021, -26% in 2022, and 25% in 2023. However, it has underperformed the S&P 500 in 2021 and 2022, echoing a trend seen in other individual stocks and heavyweights in the Financials sector. In contrast, Trefis’ High Quality Portfolio has consistently outperformed the S&P 500 over the same period, providing better returns with less risk. With the current uncertain macroeconomic environment, the question remains whether CME Group will continue to underperform or see a strong jump in the coming months.
CME Group beat street estimates in the first quarter of 2024, with total revenues increasing by 3% year-over-year to $1.49 billion. The growth was driven by a slight increase in clearing and transaction fees, a rise in market data and information services, and a significant gain in other revenues. However, the quarterly average daily volume dropped by 2%, offsetting the increase in the average rate per contract. Despite the operating margin improvement, non-operating income decreased, resulting in a 3% decline in adjusted net income year-over-year. In FY 2023, the company saw an 11% increase in total revenues to $5.6 billion, driven by growth in clearing and transaction fees, market data and information services, and other revenues.
Looking ahead, CME Group is expected to continue its growth trend in the second quarter, with forecasted revenues of $5.86 billion in FY 2024. The adjusted net income margin is also expected to improve, leading to an annual GAAP EPS of $9.60. With a P/E multiple just above 23x, this will result in a valuation of $224 per share. Despite recent underperformance compared to the S&P 500, CME Group’s financial outlook and strategic direction suggest potential for growth and increased shareholder value in the coming months.
Overall, CME Group has demonstrated resilience and growth potential despite recent fluctuations in returns and underperformance compared to broader market indices. With a focus on increasing revenues and improving profitability, the company is well-positioned to capitalize on opportunities in the evolving financial landscape. Investors looking for market-beating portfolios may consider the Trefis High Quality Portfolio, which has consistently outperformed the S&P 500 by providing better returns with less risk. As CME Group navigates the uncertain macroeconomic environment, its ability to adapt and drive growth will determine its performance in the market and potential for future success.