CME Group Upgraded To Neutral By JPMorgan

CME Group Upgraded To Neutral By JPMorgan
By CME Group/Henry Delforn/Allan Schoenberg (CME Group) [CC BY-SA 3.0], via Wikimedia Commons

CME Group Inc (NASDAQ:CME) was upgraded by JPMorgan Chase & Co. (NYSE:JPM)’s research analysts from an ‘underweight’ rating to a ‘neutral’ rating.

CME Group Upgraded To Neutral By JPMorgan

Kenneth B. Worthington and team, however, don’t recommend CME Group Inc (NASDAQ:CME) at the current price, given the potential for volatility to stabilize and for volumes to normalize.

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CME Group Inc (NASDAQ:CME) is the world’s leading and most diverse derivatives marketplace offering the widest range of futures and options products for risk management.

CME Group’s Volumes Surge

JPMorgan Chase & Co. (NYSE:JPM) analysts feel CME Group Inc (NASDAQ:CME)’s leading interest rate futures business is witnessing surges in volume as volatility recovers and repositioning drives activity levels to elevated levels. Interest rate product volumes represent the single largest product category for CME by volume.

The analysts, however, note almost all of CME Group Inc (NASDAQ:CME) products are experiencing higher volume driven by increased volatility.

The analysts note CME Group Inc (NASDAQ:CME)’s energy business has recovered with recovery in WTI volumes and rise in CME’s market share of Brent. Besides, with the recovery of VIX levels, equity volumes have also shown uptrend. OTC clearing, too, of late, showed progress.

As seen from the following graph, CME Group Inc (NASDAQ:CME)’s volumes have surged from 10 million contracts per day at the low to an average of 16 million contracts daily. Though CME has achieved such peaks previously, the market now believes the migration towards higher rates has begun.

CME's Total Product Volumes

However, JPMorgan Chase & Co. (NYSE:JPM) analysts’ negative thesis arose from the concern on potentially negative impact of OTC clearing on swaps and futures trading volume. With the stock higher and the benefit of higher volume priced in, the analysts feel the stock offers limited upside potential.

Though both fixed income and equity trading are on a depressing trend, the analysts note the recent volatility has allowed velocity and volumes to return to previous levels. Hence, the analysts anticipate a slightly higher than $4.00 EPS as more normalized earnings.

CME Surged to one of the Best Stocks in S&P 500

JPMorgan Chase & Co. (NYSE:JPM) analysts note CME Group Inc (NASDAQ:CME) stock has appropriately surged to be one of the best stocks in the S&P 500 (INDEXSP:.INX) this year. However, with no catalyst to slow volatility in the near term, the analysts have assigned a ‘neutral’ rating for the stock.

Dec 2013 Target At $72

CME Group Inc (NASDAQ:CME)’s stock shot up by about 18 percent in the last month against the S&P 500 (INDEXSP:.INX)’s 5 percent decline.

With a migration to a rising rate environment appears to have won favor in both the debt and equity markets, the JPMorgan Chase & Co. (NYSE:JPM) analysts have raised estimates for CME Group Inc (NASDAQ:CME). The analysts have raised their 2013 and 2014 estimates for CME to reflect such increase in volumes.

With their normalized earnings estimated slightly higher than $4 per share, the analysts have set a December 2013 target price of $72 for CME Group Inc (NASDAQ:CME).

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