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CME Group (CME) Stock May Be Fully Priced On Treasury Clearing Plans

Simply Wall St · 1d ago

CME Group has delivered a 70.3% share price gain over the past 5 years, so the immediate question for you today is whether that kind of run is supported by the returns the business earns on its capital.

  • The 70.3% return over 5 years puts real weight on the question of whether CME Group's current valuation is being backed by robust returns on the equity and capital it has invested into the clearing and trading infrastructure you are paying for.
  • New products and clearing initiatives, from expanded US Treasury clearing to crypto and sports related futures, can influence how efficiently CME Group turns its sizeable trading ecosystem into cash flows relative to the capital it must commit to risk management and technology.
  • What if you looked at CME Group through its earnings instead? See why CME Group's 22.8x P/E tells a different valuation story.

The stock's next move may depend on whether the returns CME Group earns on its capital are strong enough and durable enough to support the price implied by that 5 year performance and the current trading backdrop.

If you want to cross check CME Group against other ideas that focus on quality and value, a focused screener of 30 high quality undervalued stocks is a clean next step in your research.

Is CME Group Fairly Priced on Excess Returns?

The Excess Returns model looks at how effectively CME Group turns each dollar of shareholder capital into profits above its cost of equity. For CME Group, the inputs point to a business earning more than its hurdle rate, with a stable EPS estimate of $13.66 per share supported by an average return on equity of 16.22%. Against a book value of $73.82 per share and a cost of equity of $6.70 per share, the model attributes $6.96 per share to returns generated over and above that required return.

Those excess profits are projected on a higher future capital base, with stable book value expected at $84.22 per share. Because the Excess Returns projections put CME Group's estimated intrinsic value broadly in line with the current share price of $270.80, the market price already embeds the assumption that these elevated returns on equity will persist. The planned launch of CME Securities Clearing for US Treasuries helps explain why investors are comfortable paying up for those projected excess returns. Find out what CME Group could be worth using our Excess Returns estimate.

The CME Group Narrative: What Would Justify Today's Price?

CME Group Narratives on Simply Wall St pick up where the excess returns puzzle leaves off and spell out which future paths for growth, margins and earnings would need to hold for the stock to be worth meaningfully more or less than today’s price.

Each scenario lays out the assumptions that sit behind its idea of fair value in plain terms so you can compare those expectations with CME Group's actual results as they are reported.

One of the top community narratives on CME Group: roughly fairly valued

"New product introductions, such as single stock futures, compute futures on NVIDIA H100 rental costs, E mini Equity Factor futures, wind power contracts, leveraged loan index futures…"

Discover why this Narrative puts CME Group at roughly fairly valued.

One more angle on CME Group that could change the story

Price, profits and products only tell part of the CME Group story, because the people setting priorities and how they are rewarded can heavily influence what happens next. See who runs CME Group and how they are paid.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.