CME Group Inc. (NASDAQ:CME) has been witnessing escalating expenses over the past few years and the futures exchange does not expect a change anytime soon. Also, management predicts adjusted total operating expenses excluding the licensing fees to go up by 1% in 2017 from the previous year.
Given the transfer of the Russell products in July and aggregate changes in licenses, license fees are estimated to increase in the range of 10-15% year over year during the second half of this year. Additionally, CME Group has projected a capital expenditure to range between $100 and $110 million in 2017.
With a vast and diversified product portfolio, CME Group runs the risk of being exposed to numerous factors like volatile interest rates and limited credit availability under current unstable derivative markets. These aspects can impact the company’s liquidity, resulting in a decline in customer demand. The company will continue to witness a downward trend, if the trade condition further worsens in future.
Despite product expansion, CME Group is heavily dependent on trading volumes from two specific product lines for a significant portion of its clearing and transaction fee revenues, which in turn poses concentration risk.
The company believes that the ongoing consolidation in the industry, which has raised caution over the sustainability of sturdy groups, will pose an uphill task to gain a robust market share.
Moreover, shares of CME Group gained 7.59% year to date, underperforming the Zacks categorized Securities and Exchanges industry’s gain of 13.28%. Also, the company witnessed its full-year 2017 and 2018 estimates moving south nearly 1.2% and 1.3% respectively, over the last 60 days.
This Zacks Rank #4 (Sell) futures exchange has a trailing 12-month return on equity (ROE) of 7.4%, considerably lower than the industry’s 9.5% average. Its expected long-term earnings growth is poorly pegged at 9.60%, pretty lower than the industry’s advance of 12.10%.
CME Group also carries a dismal VGM score of F. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three factors.
Stocks to Consider
Some better-ranked stocks from the finance sector are Reinsurance Group of America, Incorporated (NYSE:RGA) , Cigna Corporation (NYSE:CI) and FBL Financial Group, Inc. (NYSE:FFG) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Reinsurance Group deals in reinsurance business. The company has delivered positive surprises in three of the last four quarters with an average beat of 5.08%.
Cigna provides insurance plus related products and services in the United States and internationally. The company has delivered positive surprises in three of the last four quarters with an average beat of 1.35%.
FBL Financial sells individual life insurance and annuity products. The company has delivered positive surprises in two of the last four quarters with an average beat of 1.98%.
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Reinsurance Group of America, Incorporated (RGA): Free Stock Analysis Report
Cigna Corporation (CI): Free Stock Analysis Report
FBL Financial Group, Inc. (FFG): Free Stock Analysis Report
CME Group Inc. (CME): Free Stock Analysis Report
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