Tuesday, February 5, 2008

CME Group (CME) Impressive as Always

CME Group (CME) is a former fund holding, but a name I still like. Technically, it has been range bound between its 50 and 200 day moving averages of late. We'd like to see a move above $630 (50 day moving average) to signify it is ready to "go". The chart looks far superior to Intercontinental Exchange (ICE) - another former fund holding.

But earnings wise - impressive as always.
  • CME Group Inc.'s profit nearly doubled in the fourth quarter as its acquisition of the Chicago Board of Trade helped boost volume at the world's largest financial exchange company.
  • CME Group, which also operates the Chicago Mercantile Exchange, earned $201.1 million, or $3.75 per share, in the last three months of 2007, up 96 percent from profit of $102.6 million, or $2.91 per share, in the fourth quarter of 2006.
  • The profits topped the consensus estimate of analysts surveyed by Thomson Financial, who had forecast $3.62 per share.
  • Revenue, which CME Group collects by charging fees for hosting and clearing trades, surged 88 percent to $529.5 million from $281.3 million. Analysts expected revenue of $535.3 million.
  • CME Group hosts trading of contracts that derive their value from an underlying commodity or event. Investors use these contracts to shelter their investment portfolios from swings in interest rates or gyrations in the stock market.
  • Trading volume on the Chicago-based company's exchanges surged 23 percent in the fourth quarter to average 10.6 million contracts a day. Full-year trading volume jumped to nearly 2.8 billion contracts worth more than $1.2 quadrillion, the company said.
  • So far in 2008, volumes have grown 65 percent compared with the same period last year, the company said.
  • Banc of America Securities analyst Christopher Allen said in a note to investors that CME had a "solid quarter as revenues continued to benefit from strong activity levels and a higher-than-expected rate per contract." He and other analysts said CME is clearly off to a strong start in 2008.
  • CME Group last month confirmed it is considering offering about $11.3 billion for Nymex Holdings Inc., which hosts trading of energy and metals contracts.
If not for this buyout offer for Nymex I'd be very interested in adding this name back. I still might be. But I'll let the chart tell me when to go. The stock is building a very nice base here between $600-$630. The longer the base, the more powerful the move (when it happens). The question is what direction....? :) But with volatility so extreme, these exchanges are just printing money hand over fist.

Valuation is rich, but again there is scarcity value here (CME deals in commodities, interest rate contracts, index futures, just about everything not just plain vanilla stocks) and tremendous growth. Analysts believe $19.31 for 2008, so let's use $20 as a nice round number. A price point of $600 is obviously a very rich 30x forward estimate. In a market that does not treat rich stocks very well. But the stock is holding up quite well in the market carnage and remains of high interest to me, now that it has pulled back from the $700+ level. This won't be a high flier returning 60% in a year, but a nice core holding.

No position

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