The cryptocurrency market continues to heat up, with enthusiasm surging over spot Ethereum (ETHUSD) ETF launches following today's SEC rule change, and investors are increasingly looking for ways to capitalize on the next leg of the rally. For investors who are intrigued by the growth potential of crypto - but uneasy about its penchant for volatile price swings - one option to consider is CME Group (CME), as the leading derivatives exchange has been steadily expanding its presence in the digital asset space over the years.
Most recently, CME made headlines in early May when reports emerged that the company is laying the groundwork to launch spot Bitcoin (BTCUSD) trading, potentially posing a challenge to Coinbase (COIN) and other established crypto exchanges. This move would complement CME's existing Bitcoin futures (BTK24) offerings, which it first introduced back in 2017, as well as its Ether futures (ERK24), launched in February 2021.
Along with a piece of the booming crypto market, the exchange operator also offers a 2.17% dividend yield, and just posted record volume data for the month of April. Here's what else you need to know about this dividend stock right now.
CME Group's Unparalleled Market Presence
CME Group (CME), as the world's leading derivatives marketplace, offers a diverse range of futures and options products across various asset classes, including interest rates, equity indexes, foreign exchange, energy, agricultural commodities, and metals.
While there's always buzz around new players entering the Bitcoin trading scene, CME's long history with industry regulators, and its existing portfolio of crypto derivatives, suggest the exchange giant should be well-equipped to navigate any hurdles that might be thrown its way.
Is CME Stock a Good Value?
Valued at $76.15 billion by market cap, CME stock has advanced 18.4% over the past 52 weeks, though it's roughly flat on a year-to-date basis. Like many dividend stocks, CME has lagged the returns of the broader S&P 500 Index ($SPX) over both time frames.
When it comes to value, CME's looking pretty good. Its forward P/E ratio is around 21.74, down from its five-year historical average of 26.25 - and cheaper than rivals like Intercontinental Exchange (ICE) and Nasdaq (NDAQ), too. That suggests you can buy into CME's future earnings growth at a discount right now.
Plus, CME has been consistently increasing its dividends for 14 years straight. Their current quarterly dividend is $1.10 per share, and they tend to pay out special dividends at the end of each year, too. Based on the annualized payout of $4.60, CME yields 2.17%, while the trailing 12-month yield - with special dividends included - works out to 4.6%. That makes CME a prime pick for income investors.
And with a payout ratio of 60%, they're striking a nice balance between rewarding shareholders and reinvesting for growth.
CME Reports Record April Volume
The first quarter of 2024 was pretty solid for CME, with the company pulling in $1.49 billion in revenue and net income of $855.2 million. Adjusted earnings per share arrived at $2.50, edging past the consensus forecast of $2.44. This boost was thanks to a bustling trade in U.S. Treasury futures and options, plus and a 14% jump in commodities trading.
Looking ahead, analysts are betting on CME to keep up the momentum, thanks to more trading action and higher fees. Already, April's volume data suggests that Q2 could be a strong one.
In fact, CME Group reported average daily volume (ADV) of 26.5 million contracts in April, which marked a new record high for the month. ADV was up 33% year over year and 9.1% from the month prior, driven by double-digit growth across all asset classes.
With metals prices surging, CME reported April ADV of 1 million contracts, including new records for copper futures (HGN24) and options, as well as silver options. The exchange also noted new monthly ADV records in U.S. Treasury options, agricultural products, energy, forex, and more.
More Product Launches, More Volume
CME Group's recent moves show they're really doubling down on growth and diversification. They've launched corporate bonds and mortgage-backed securities on their BrokerTec Quote platform, along with the upcoming launch of U.S. credit futures in June. This expands their product lineup, giving clients a one-stop shop to manage risk and financing needs - and even more products to trade.
And that's not all. They're also expanding their short-term WTI Crude Oil options to include Tuesday and Thursday expiries, which means the exchange now has options expiring on that asset every day of the week. More options mean more flexibility for traders to adjust their portfolios and hedge around specific events, like an OPEC decision or a Fed meeting - and of course, adds more volume opportunities for CME when markets get wild.
Analysts Say CME Stock is a Buy
Looking ahead, analysts are expecting full-year 2024 EPS at $9.72, up 4% year over year. Revenue for the year is expected to rise 6.2% to nearly $6 billion.
The stock has a consensus “Moderate Buy” rating on Wall Street. Out of 16 analysts, 7 recommend a “strong buy,” 7 suggest a “hold,” and 2 advise a “strong sell.”
The average 12-month price target of implies about 6% upside from current levels. The highest estimate is $250, suggesting a potential 17.9% increase.
Analysts at Bitget Research seem optimistic about CME's crypto initiatives, noting that CME's entry into the spot Bitcoin market could further boost institutional adoption of digital assets, providing additional liquidity, stability, and legitimacy via its presence in the space.
The Bottom Line on CME Group Stock
In conclusion, CME Group stands out as a compelling investment opportunity, and a move into spot Bitcoin trading could be a likely next move amid its slate of continuing product launches. With its well-established presence in the crypto derivatives market and among institutional traders more generally, CME could be poised to capture significant market share.
Aside from that, the company's solid earnings, healthy volume stats, and consistent dividend growth further enhance its appeal. For investors seeking a blend of income and growth potential, CME Group offers a unique proposition, combining the stability of a financial powerhouse with the dynamic opportunities of the cryptocurrency market.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.