CME Group Inc (CME): Will Futures Keep Gaining Popularity?

Page 1 of 2

The largest futures exchange in the world, CME Group Inc (NASDAQ:CME) came to be in 2007, when the Chicago Mercantile Exchange and CBOT holdings merged.  Anyone who invests regularly (or watches CNBC, for that matter) can tell you how relevant futures and options have become over the past decade or so.  All of the major discount brokerages have begun offering futures trading to those clients who are adventurous enough to trade them!

CME Group IncFor that reason, CME has flourished, with revenues rising every year over the past decade, even during the crazy years of 2008 and 2009, when every company even remotely related to financial services was getting crushed.  With the company set to report earnings February 5, investors want signs that this trend will continue.

Company Profile

CME offers a diverse range of futures and options-on-futures products, using both its CME Globex trading platform and trading floors.  They offer futures in four primary areas: interest rates, stock indexes, foreign exchange, and commodities.

The company also operates its own clearing house, which settles and guarantees every contract traded through the exchange, a huge competitive advantage since this allows the company to earn revenue from both trading and clearing.  CME gets 83% of its revenues from fees directly from trading and clearing, with the remainder coming from its auction markets, private transactions, and its clearing services for OTC transactions.

Earnings and Valuation

CME has demonstrated consistent earnings growth as revenues have increased, with only one year of negative earnings growth (2009).  When the company reports next week, they are expected to report $3.03 per share, and the consensus calls for this to increase to $3.24 and $3.70 in 2013 and 2014, respectively.

So, even though the stock trades at around 19 times earnings, with a forward average earnings growth rate of 10.6%, I believe this valuation is well deserved.  For comparison’s sake, let’s take a look at two other publicly traded exchanges, Intercontinental Exchange and NASDAQ.

Intercontinental Exchange, who just agreed to purchase NYSE Euronext, is the leading global soft commodity futures exchange, so business-wise it is actually quite similar to CME.  The stock trades at 17.7 times earnings, slightly less than CME; however, the earnings growth predicted is slightly less.  There is also a certain element of risk in getting the NYSE deal approved, as the company is devoting a large portion of its resources to making it happen. That being said, ICE does seem like a fairly-valued investment, given the added uncertainty.

Page 1 of 2

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!