Goldman Sachs slaps "sell" rating on CME Group
NEW YORK (AP) — Goldman Sachs cut its rating on CME Group Inc., the operator of the Chicago Mercantile Exchange, to "Sell" from "Neutral" on Monday, saying that the company's stock price looks rich compared to its earnings prospects.
CME Group's stock was down more than 1 percent in afternoon trading, dropping 721 cents to $54.24.
The exchange operator announced plans to reward investors with a larger dividend payment this month, in case tax rates on dividends rise next year. But Goldman analyst Alexander Blostein said investors should be paying attention to the company's earnings outlook and stock price, "which we believe are at risk."
Profit expectations for CME Group and the company's stock price have been heading in opposite directions all year, Blostein said. Wall Street's estimates for CME Group's 2013 earnings have slid 20 percent since the end of January. Over the same time period, CME Group's stock gained 15 percent.
The big problem for all exchange operators is that trading volumes continue to sink. Trading in U.S. stocks, futures and other major financial products has slumped 15 percent this year, according to Blostein. And he doesn't expect trading activity to pick up soon.
These trends pose the biggest risk to the CME Group, "the leading global futures exchange," Blostein said. Goldman cut its price target on CME Group's stock to $48 from $53.
Blostein expects CME's trading volume to rise a modest 2 percent in 2013. That implies Wall Street's estimate of 11 percent earnings growth for CME next year is "too optimistic," he said. Goldman's call is for CME to post earnings per share of $3.10 in 2013. The consensus estimate is $3.37.
Overall in the sector, Blostein said NYSE Euronext Inc. is his top pick. He rates the operator of the New York Stock Exchange a "Buy," with a $29 price target. The analyst said he expects the company's fourth-quarter earnings announcement, scheduled for early February, to be a positive catalyst, and he expects to see results from cost cuts and a new stock repurchase program. NYSE Euronext shares added 10 cents to $23.63.