Will Volatile Interest Rates Limit CME Group's (CME) Growth?

On Jun 23, 2016, we issued an updated research report on CME Group Inc. (NASDAQ:CME) .

The ongoing weakness in derivative markets and widening of spreads are hurting the top line and bottom line of CME Group. The first quarter of 2016 too witnessed a slight uptick in operating expenses.

Moreover, the revolving credit facilities, intense borrowing and note offerings could hamper the company’s capital position in the future. Also, higher impairment losses from acquired assets and interest costs continue to weigh on the bottom line.

Further, the securities exchange provider anticipates capital expenditure to range between $115 million and $120 million in 2016. Also, weak fundamentals and repayment of debt may limit CME Group’s ability to fund capital expenditure and pursue acquisitions or investments in new technologies.

CME Group’s diversified product portfolio is significantly exposed to extreme interest rate volatility, currency fluctuation, firm government regulations and limited credit availability in the currently unstable capital and credit markets. As a result, the company’s liquidity can be hampered. Also, if this trade scenario continues or worsens then the company might witness a fall in the customer demand.

The Zacks Consensus Estimate has also been witnessing downward revisions over the last 60 days for both 2016 and 2017. It declined 5% to $4.36 for 2016 and 1% to $4.70 for 2017.

Nonetheless, diverse derivative product lines, new products launches, modest capital position and effective capital deployment raise optimism.

In addition, efforts to promote, expand and cross-sell its core exchange-traded business through strategic alliances, meaningful acquisitions, new product initiatives and global presence support growth.

With respect to earnings performance, CME Group delivered positive surprise in three of the last four quarters with an average of about 2.4%.

Zacks Rank and Stocks to Consider

Currently, CME Group carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the finance sector are Bats Global Markets (NYSE:BATS) , Markel Corp. (NYSE:MKL) and Cincinnati Financial Corp. (NASDAQ:CINF) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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