NEW YORK (
(CME - Get Report)
shares opened slightly lower Monday after Goldman Sachs analysts reduced their recommendation to "Sell" from "Neutral," arguing weak trading volumes will drive analyst profit estimates lower.
"Although we view CME as the leading global futures exchange, with resilient margins and a powerful capital deployment strategy, we believe the Street is too optimistic on CME's near-term EPS outlook (we are 8% below consensus for 2013) given the most recent volume and open interest trends," states the report, from analysts Alexander Blostein and Christopher Johnson.
CME shares have risen 44% on a 12 month forward price-to-earnings ratio since February, when the company said it would increase its dividend target from 35 percent to 50 percent of the previous year's cash earnings. CME said last week it would accelerate next year's dividend payment to this year in order to spare investors an expected higher tax rate in 2013.
Following those announcements, however, Goldman's analysts "expect investor focus could shift back to the firm's core fundamentals, which continue to deteriorate," they write, noting that the amount of open derivatives contracts is down 12% through 11 months of 2012 versus the same time period in 2011.
CME should see "muted volume growth of 2%" in 2013 versus 2012, according to Goldman's analysts. They a potential slowdown in trading of the company's interest rate products due in part to upcoming regulatory changes, market share losses in energy futures, and weaker equity futures activity due to the "potential spillover effect from structural challenges in cash equities."
Goldman's analysts also contend the opportunity to CME from increased exchange trading of over-the-counter derivatives, a key measure of the 2010 Dodd Frank financial reform legislation will not have a significant near-term earnings impact.
Instead of CME, Goldman's analysts argue
is a better investment due to cost-cutting measures and new buyback authorization, the report states.
Written by Dan Freed in New York