On Thursday, Citi reiterated its Buy rating on CME Group (NASDAQ:CME) stock with a steady price target of $240.00. The firm highlighted a favorable outlook for CME Group, contrasting it with CBOE Holdings. Citi has recommended an overweight position in CME Group and an underweight position in CBOE, based on their analysis of the current market conditions and future expectations.
The firm's preference for CME Group stems from its positive leverage to interest rates and equities, along with a compelling commodities narrative. In contrast, CBOE's performance is more dependent on its index franchise. Current volume trends for both companies are surpassing estimates, but CME Group is believed to hold more potential for upward revisions to consensus forecasts.
Citi also pointed out the possibility of a strategic shift in CME Group's (NASDAQ:CME) approach to capital returns in the fourth quarter of 2024. While CBOE has already increased its dividend and buyback program, CME Group may be poised for a similar move, which could positively influence its valuation.
Moreover, CME Group is currently trading at a multiple that is two times lower than CBOE's, based on Citi's 2025 earnings per share (EPS) projections. This is a significant change from the average premium of four times that CME Group has commanded over CBOE in the past five years. Citi believes that the current discount on CME Group's shares is due to overstated competitive concerns and sees this as an unwarranted valuation gap.
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