CME - CME Group: Improved Valuation Offset By Low Market Volatility And Higher Rates

2024-03-27 16:03:05 ET

Summary

• Market exchange companies like CME Group have performed well despite poor performance in the financial sector due to stable pricing power and improved market volumes.
• CME Group's revenue per share is correlated to market volumes and volatility. Volumes remain high today, but low implied volatility signals a volume reversal.
• CME Group has a fair outlook with solid revenue growth, low competition, and dominance in the futures and derivatives market.
• The company's valuation is lower than it has been but still high compared to most equities, particularly given the sharp increase in risk-free rates.
• If implied volatility levels remain as low as they are, I expect CME to be disappointed in 2024. That said, there is reason to believe volatility will rebound soon.

While most financial sector stocks have performed poorly in recent years, market exchange companies have held their ground. Notable examples such as CME Group ( CME ) have avoided the sharp price declines seen in many other financials since interest rates were raised. Exchange companies continue to benefit from decent market volumes and activity, which are popular among investors for their relatively anti-cyclical revenue streams. Theoretically, CME Group benefits from increased market volatility as it drives higher transaction volumes for CME....

For further details see: