Why Is CME (CME) Down 17.3% Since Last Earnings Report?

It has been about a month since the last earnings report for CME Group (CME). Shares have lost about 17.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CME due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CME Group's Earnings Lag Estimates in Q4, Drop Y/Y

CME Group reported fourth-quarter 2019 adjusted earnings per share of $1.52, which missed the Zacks Consensus Estimate by 1.3%. The bottom line also declined 14.1% year over year, mainly due to lower revenues.

Performance in Detail

CME Group’s revenues of $1.1 billion decreased 8% year over year due to lower clearing and transaction fees. Moreover, the top line missed the Zacks Consensus Estimate by 0.8%. The year-over-year softness in revenues can be attributed to lower clearing and transaction fees (down 12.9% year over year).

Total expenses dipped 3.6% year over year to $565.4 million during the reported quarter on account of weak compensation and benefits; professional fees and outside services; licensing and other fee agreements plus other expenses.

Operating income fell 11.8% from the prior-year quarter to $573 million.
Average daily volume shrank 19% year over year to 16.9 million contracts in the quarter.

Financial Update

As of Dec 31, 2019, CME Group had $1.6 billion of cash and marketable securities, up 12.9% from the level at 2018 end. As of Dec 31, 2019, long-term debt of $3.7 billion slipped 2.2% from the figure at 2018 end.

As of Dec 31, 2019, the company had total assets worth $75.2 billion, down 2.9% from the number at 2018 end.

Capital Deployment

CME Group declared dividends of $2 billion for 2019 including the annual variable dividend worth $894 million. The company returned $13.2 billion to its shareholders in the form of dividends since the implementation of the variable dividend policy in early 2012.

Full-Year Update

Non-US ADV for 2019 reached a milestone of 4.9 million contracts, up 10% year over year, mainly attributable to growth in Europe, Asia and Latin America.

Total revenues for the year were $4.8 billion, up 13% year over year. Adjusted earnings per share were $6.80

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.67% due to these changes.

VGM Scores

At this time, CME has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CME has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.