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CME to Benefit from Rising Interest Rates, Strategic Alliances

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Growth across asset classes

CME Group (CME) stock has risen about 6% over the past one month and 2% over the last year. The company’s market capitalization has declined to $32 billion.

CME’s third quarter earnings saw a 20% rise in earnings per share (or EPS) compared to the prior year’s quarter. The company beat analysts’ estimates by 3% and reported adjusted EPS of $1.02. Its profits were primarily driven by energy, interest rates, and foreign exchange products. It reported total revenues of $850 million in 3Q15, up by 12% compared to the prior year’s quarter.

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Analysts expect CME to report $0.91 EPS in the current quarter and $1.05 in the March quarter. In the December quarter, trading is expected to decline toward the end of the year. In 2016, CME is expected to achieve 11% growth in earnings, with EPS of $4.29. CME performance will be positively impacted by interest rate hikes in the next year. The company tends to benefit from its rates business and new strategic alliances but is lagging in its swaps clearing business.

Regulated exchanges

CME Group is the holding company for the Chicago Board of Trade (or CBOT), the New York Mercantile Exchange (or NYMEX), the Commodity Exchange (or COMEX), and their respective subsidiaries. It’s also the holding company for CME Clearing Europe (or CMECE) and CME Europe.

CME is the second-largest futures exchange in the world in terms of trading volume and notional value traded. Its offerings include the widest range of benchmark products covering all major asset classes such as interest rates, equities, foreign exchange, agricultural commodities, energy, and metals. CME generated a total revenue of $3.1 billion in the last fiscal year. Let’s compare that to its peers:

  • NASDAQ OMX Group (NDAQ): $3.5 billion
  • Intercontinental Exchange (ICE): $3.0 billion
  • CBOE Holdings (CBOE): $0.6 billion

Together, these companies form 1.9% of the Financial Select Sector SPDR ETF (XLF).

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