On Friday, Deutsche Bank adjusted its stance on CME Group (NASDAQ: CME), shifting from a Buy to a Hold rating and lowering the price target to $210 from the previous $235. The revision reflects expectations of a decrease in trading volumes, particularly within the interest rate sector, starting in the second quarter of 2024 and continuing beyond.
The downgrade was influenced by trading volumes in the latter part of the first quarter of 2024 that were lower than anticipated. The bank also anticipates less market and rate volatility for the remainder of the year than previously projected. These factors contribute to a 4-5% reduction in the bank's annual earnings per share (EPS) estimates for CME Group.
While Deutsche Bank's first-quarter EPS forecast for CME Group is now 1% below the consensus, its full-year EPS estimate for 2024 is still 3-4% higher. Despite this, the anticipated slower EPS growth—now expected to be in the mid-single digits for 2024 and 2025, compared to the previously forecasted double-digit growth for 2024 and mid-single-digit for 2025—has led to a change in expectations regarding the stock's valuation.
Deutsche Bank now projects that CME Group's (NASDAQ:CME) shares will trade at a valuation close to current levels. This is estimated to be a 5% price-to-earnings (P/E) premium to the S&P 500, which is roughly one standard deviation below the stock's one-year average relative P/E. The combined effect of the revised estimates and valuation outlook has resulted in the reduced price target.
InvestingPro Insights
As investors digest the recent rating change by Deutsche Bank on CME Group, it's pertinent to consider the company's financial health and market position. According to InvestingPro data, CME Group boasts a robust market capitalization of $76.4 billion, and its P/E ratio stands at 24, reflecting a premium valuation in the market. The company's revenue growth has been impressive, with an 11.19% increase over the last twelve months as of Q4 2023, and a significant quarterly growth of 19.2% in Q1 2023. This suggests that despite the anticipated decrease in trading volumes, the company has demonstrated strong financial performance recently.
An InvestingPro Tip worth noting is that CME has raised its dividend for 5 consecutive years and has maintained dividend payments for 22 consecutive years, which could be appealing to income-focused investors. Additionally, the company has been profitable over the last twelve months and analysts predict it will remain profitable this year. With a high return over the last decade, CME Group seems to have a track record of rewarding shareholders. For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/CME. To deepen your investment research, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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