How Will CME Perform In The Next 3 Years?

+6.21%
Upside
214
Market
228
Trefis
CME: CME Group logo
CME
CME Group

CME Group (NASDAQ:CME) has seen impressive growth in recent years. The exchange’s revenue grew at a CAGR of 6% and stock price jumped over 3x in the last five years. The company’s continued efforts in expanding its global footprint and diverse product line to suit investor demand bodes well for its long-term growth outlook. Additionally, CME recently launched bitcoin futures trading on its platform. With this initiative, the company is looking to get an early movers’ advantage in the volatile but fast-growing asset class.

We have a $146 price estimate for CME’s stock, which is below the current market price. We have also created an interactive dashboard which shows the forecast trends; you can modify the key value drivers to see how they impact the exchange’s revenues and bottom line.

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Derivative revenues have continued to grow at an impressive rate over the past few years, largely driven by the phenomenal growth in energy, interest rate and metal derivative volumes. We expect the interest rate derivative volumes to continue growing amid improving macro conditions and further rate hikes in the upcoming years. Since the outlook for oil production remains somewhat uncertain, we expect the market volatility to continue in the near term, which should lead to continued growth in energy derivative trading volumes.

Despite recent mixed results, CME remains bullish on its Market Data and Information Services segment, with new products in the pipeline with enhanced business intelligence and machine learning capabilities. The company has gained traction by offering many data services to its customers free of charge until recently, and we expect that many of its existing customers will be willing to pay for more advanced products.

With strong competition from other exchanges, it is likely that the company will keep transaction pricing in check due to significant competitive pressure . This should put pressure on the company’s trading margins in the near term. However, an overall boost in revenues and the recent corporate tax overhaul should drive net income going forward.

Please refer to the full Trefis analysis for CME Group.

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