CME Outperforms Industry, Trades at a Discount: How to Play the Stock

Shares of CME Group Inc. CME have gained 23.1% in the past year, outperforming the industry's growth of 5.8%, the Finance sector’s return of 17.2% and the Zacks S&P 500 composite’s appreciation of 17.6%. 

With a market capitalization of $96.84 billion, the average volume of shares traded in the last three months was 2 million. CME has a solid track record of beating earnings estimates in three of the last four quarters, while missing in one, with an average of 1.62%.

CME Shares are Undervalued

CME Group shares are trading at a discount to the Zacks Securities and Exchange industry. Its forward price-to-earnings of 23.44X is lower than the industry average of 24.19X.
 

Shares of Intercontinental Exchange Inc. ICE and Nasdaq, Inc. NDAQ are also trading at a discount to the industry average, while Cboe Global Markets CBOE shares are trading at a multiple higher than the industry average.

CME Trading Above 200-Day Moving Averages

Shares of CME Group closed at $268.73 on Thursday and are trading above the 200-day simple moving average (SMA) of $261.41, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

CME’s Growth Projection

The Zacks Consensus Estimate for CME Group’s 2024 earnings per share (EPS) indicates an 8.7% year-over-year increase. The consensus estimate for revenues is pegged at $6.53 billion, implying a year-over-year improvement of 6.5%. 

The consensus estimate for 2026 EPS and revenues indicates an increase of 3.6% and 4.7%, respectively, from the corresponding 2025 estimates.

Optimistic Analyst Sentiment for CME

Two of the eleven analysts covering the stock have raised estimates for 2025 and 2026 over the past 60 days. Thus, the Zacks Consensus Estimate for 2025 and 2026 earnings has both moved north 0.2% in the past 60 days.

Target Price Reflects Potential Upside

Based on short-term price targets offered by 18 analysts, the Zacks average price target is $286.17 per share. The average indicates a potential 8.2% upside from the last closing price.

Factors Impacting CME

CME Group demonstrates strong organic growth. Given that CME is an exchange, it naturally benefits from heightened market volatility, which fuels trading activity and, in turn, increases clearing and transaction fees. These fees continue to be the largest contributor to CME’s top line, and their sustained growth bodes well for future revenue expansion.

CME Group is also seeing rising electronic trading activity and increasing traction in crypto assets, driven by growing participation in the broader crypto economy. With Donald Trump’s second term ushering in a more crypto-friendly regulatory climate, CME is well-positioned to capitalize on these trends.

CME’s investments are delivering positive returns, and its ongoing focus on cost efficiency is helping to improve margins. A robust capital base supports initiatives to grow its market data business, broaden its product range and pursue strategic capital deployment.

Moreover, CME has consistently delivered strong financial performance, with free cash flow conversion exceeding 85% in recent quarters — a testament to its solid earnings quality.

End Notes

A strong global presence, a compelling product portfolio, a solid capital position, and a focus on over-the-counter clearing services poise CME well for growth. A crypto-friendly regulatory climate will add to the upside.

CME’s dividend history is impressive, too. It pays five dividends per year, with the fifth being variable and based on excess cash flow, making it an attractive pick for yield-seeking investors.

Given its solid growth projection, attractive valuation, and positive analyst statement, this Zacks Rank #2 (Buy) stock appears to be a compelling investment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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