CME Group (CME) is one of the biggest financial services companies with a market cap of over $78 billion. It is a firm that makes it possible for clients to trade futures, cash, options, and over-the-counter (OTC) products easily.
CME Group is also a major player in the research, analytics, and clearing industries. It primarily competes with Cboe Markets, a company that offers futures and options trading in the US and Europe.
Its other primary competitors are companies like Intercontinental Exchange (ICE) and NASDAQ, which provide exchanges where stocks are listed.
Its annual revenues have been in a slow growth in the last few years. It moved from over $4.4 billion in 2019 to over $5.2 billion last year. Most importantly, it has some of the highest margins in the US, with its net profit coming in at $3.3 billion or 57%.
It also has 100% gross margins because it mostly provides data and a marketplace for people to trade and invest.
CME Group‘s stock has jumped by over 2,450% since it went public in 2002. It was trading at $218 on Wednesday while its HypeIndex metric jumped to 96%.
Positive hype
CME Group has generated positive hype because of the upcoming Federal Reserve interest rate cuts. Analysts expect that the bank will slash rates by either 0.25% or 0.50%, which will lead to more trading.
The company has higher gross and profit margins than other firms in the industry like Cboe, ICE, and NASDAQ. Cboe Markets, which has a similar business model, has a gross margin of 52% and a net income margin of 20%.
CME Group published strong financial results, with its quarterly revenues rising to over $1.5 billion. The first half revenues rose to $3 billion, helped by its clearing and transaction fees and market data solutions.
CME has a good record of rewarding shareholders in terms of dividends. It has a dividend yield of 4.51% and has boosted it in the last 13 consecutive years. It also has room to grow its payouts since it has a payout ratio of 46%.
The company operates as a duopoly in the futures and options market, with Cboe being the only key competitor. The other top competitors in other areas are firms like HKEX, LME, and ICE.
CME has some of the best margins in the financial services industry with profit margins of over 55%. These are better numbers than most tech companies like Meta, Google, and Nvidia.
CME is a fairly cheap company, trading at a forward multiple of 22, slightly higher than the S&P 500 index average.
Negative hype
The biggest negative hype for CME is that its revenue growth has slowed in the past few quarters.
Its stock has limited upside since it is trading at $218 while the average estimate among analysts is $217.
CME could face competition from FMX Exchage, an upcoming futures exchange launched by BCG, one of the biggest firms in finance. It will offer services like trading and clearing.
Summary of CME Group stock
CME Group is a top company in the financial services that has a long track record in the trading and futures industry. It is a quality dividend company with more growth ahead. Most notably, it can be described as an all-weather company because its business does well in all economic conditions.
Technically, the stock has jumped to $218, much higher than the June low of $189. It has formed a cup and handle (C&H) pattern, which is often seen as a sign of bullish continuation.
The stock remains much higher than the 50-day and 200-day Exponential Moving Averages (EMA). Therefore, it will likely continue rising as buyers target the next key resistance point at $225.
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