Is CME Group Stock Undervalued?

CME Group’s stock (NASDAQ: CME) has lost 9% YTD, while the S&P500 is down 18% over the same period. Further, its current price of $209 per share is trading 14% below its fair value of $243 – Trefis’ estimate for CME Group’s valuation. 

The company outperformed the consensus estimates in each of the four quarters in 2021. Further, the same trend continued in the first quarter of 2022, with total average daily volume (ADV) increasing by 19% y-o-y. It was primarily driven by higher equity indexes and interest rate contracts. Overall, the adjusted net income increased 22% y-o-y to $702 million.

The firm recently released its second-quarter market statistics, with total average daily volume (ADV) increasing by 25% y-o-y. It was mainly driven by a 57% rise in the equity index ADV, followed by a 24% growth in the interest rate and foreign exchange ADV each. The higher volume in the first half of 2022 was due to the recent volatility in the market driven by record-high inflation figures, aggressive interest rate hikes by the central banks across the world, and geopolitical tensions. We expect the top line to benefit from higher trading volumes in Q2. Altogether, the consensus estimates for Q2 net revenues and earnings are $1.23 billion and $1.91 respectively.

CME Group’s net revenues decreased 4% y-o-y to $4.7 billion in 2021. We forecast the CME Group revenues to touch $5.1 billion in FY2022. Additionally, CME’s adjusted net income is likely to grow 10% y-o-y to $2.9 billion in the year. This coupled with an annual EPS of $8.05 and a P/E multiple of just above 30x will lead to the valuation of $243.

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