CME Group (CME) Likely to Outperform in Q4 for Several Reasons - Piper Sandler
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Piper Sandler analyst Richard Repetto reiterated an Overweight rating and $230.00 price target on CME Group (NASDAQ: CME) after misguided headlines regarding a CME bid for CBOE caused shares to underperform in 3Q21.
- CME's volumes improved by 12% (excluding interest rates) in the second half of 3Q21 (Aug 18-Sept 30) compared to the first half of 3Q21 (Jul 1-Aug 17).
- CME interest rate futures are up 11% YTD from a 4-year low ADV of 8.0 million contracts in 2020.
- Energy volumes are benefiting from the extreme price moves in natural gas. CME energy futures in 3Q21 were up +10% QoQ / +17% YoY as CME’s energy products have benefited from the volatility in the energy markets.
- CME offers the highest dividend yield of its U.S. exchange peer group. CME currently offers a combined (regular & annual variable) dividend yield of an estimated 3.1%+, the highest among the U.S. exchange peer group and more than double its exchange peers which includes CBOE (1.40%), NDAQ (1.12%), and ICE (1.15%).
The analyst stated "with potential for continued inflation pressures and FED tapering, we believe interest rate volumes could benefit from increased interest rate volatility in 4Q21 and the coming year. Interest rate products are CME’s biggest product category making up 28% of revenues in 2Q21." He went on to comment "We believe CME shares could see
meaningful price appreciation into the end of 2021 given a confluence of environmental factors and recent share price underperformance".
Shares of CME Group closed at $193.38 yesterday.
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