CME Group’s stock (NYSE: CME) has gained 8% YTD, as compared to the 9% rise in the S&P500 over the same period. Further, at its current price of $182 per share, it is trading 12% below its fair value of $208 – Trefis’ estimate for CME Group’s valuation. The company outperformed the consensus estimates in the first quarter of 2023, with total revenues increasing by 7% y-o-y to $1.4 billion. It was primarily driven by a 5% improvement in clearing & transaction fees, followed by a 9% increase in market data & information services revenues. Notably, the clearing & transaction fees benefited from a 4% growth in the aggregate average daily volume, mainly driven by a 26% jump in the interest rates contracts. On the cost front, total expenses rose by 8% y-o-y, reducing the operating margin from 63.8% to 63.4%. However, the non-operating income increased from $57.2 million to $243.2 million, more than making up for higher expenses. Overall, the net income grew 24% y-o-y to $883.8 million.
The company’s top line grew 7% y-o-y to $5 billion in FY 2022, driven by a 10% improvement in clearing & transaction fees and a 6% increase in market data & information services revenues. The growth in clearing & transaction fees was driven by higher trading activity – aggregate ADV was up 19% y-o-y. That said, the non-operating income decreased from $728.4 million to $474.4 million in the year. It resulted in a net income of $2.7 billion – up 2% y-o-y.
Moving forward, we expect the higher trading volumes to continue in the subsequent quarters. Altogether, CME Group revenues are estimated to touch $5.36 billion in FY2023. Additionally, CME’s adjusted net income margin is likely to be around $3.1 billion in the year. This coupled with an annual EPS of $8.55 and a P/E multiple of just above 24x will lead to a valuation of $208.
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