Citi has reaffirmed its Buy rating on CME Group (NASDAQ: CME) with a steady price target of $240.00.
The endorsement comes as Citi anticipates the company to benefit from consistent volume and revenue per contract (RPC (NYSE:RES)) trends. Additionally, a year-over-year open interest growth of 11% in August and a likely volatile trading environment towards the end of the year could lead to further positive earnings per share (EPS) adjustments.
The financial services firm also pointed out that while the competitor FMX is set to introduce SOFR futures shortly, there is still uncertainty regarding the launch of U.S. Treasury futures. Amidst market volatility, Citi suggests that new market entrants face a significant challenge, and the likelihood of their success remains low.
Citi has also initiated a 90-day positive catalyst watch for CME Group. The fifth dividend announcement, expected in December, is traditionally seen as a positive event. This year, Citi speculates that there could be changes to the capital return strategy, such as a buyback or an increased quarterly dividend, which would likely be well-received by the market.
In other recent news, CME Group reported near-record trading volumes in August, with an average daily volume (ADV) of 31.7 million contracts.
This surge was observed across all asset classes, with interest rates leading the growth. The company also reported a significant increase in its second-quarter earnings, surpassing the average analyst estimate, with total revenue rising nearly 13% to $1.53 billion.
Analyst firms have recently evaluated CME Group's (NASDAQ:CME) performance. BofA Securities downgraded the company's stock from Neutral to Underperform due to increasing competition and predicted a 10%+ pricing reduction in interest rate futures.
On the contrary, Piper Sandler maintained its Overweight rating, forecasting a significant increase in interest rate ADV and raising its third-quarter 2024 earnings per share estimate for CME Group from $2.49 to $2.66.
InvestingPro Insights
Adding to the positive outlook shared by Citi, InvestingPro data reveals that CME Group is trading near its 52-week high, with a price sitting at 97.02% of this peak. This indicates a strong market confidence in the company's performance. Moreover, the company has shown a consistent ability to reward its shareholders, having increased its dividend for the last five consecutive years and maintained dividend payments for an impressive 22 years. This is supported by a solid dividend yield of 4.56% as of the last recorded date, coupled with a dividend growth of 10.67% over the last twelve months.
Financial stability is further underscored by the company's capacity to cover interest payments with its cash flows, reflecting a prudent financial management strategy. While the P/E ratio stands at 23.7, indicating a higher valuation relative to near-term earnings growth, CME Group's profitability over the last twelve months and analysts' predictions of continued profitability this year suggest that investors may be willing to pay a premium for quality. For those seeking additional insights, InvestingPro lists several more tips to help guide investment decisions.
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