CME Group’s (CME) Aug ’08 avg daily trading volume (ADV) of 9.4 million contracts is trending 37% below Aug ’07 at 14.9 million. This is at least in part due to a tough comparison, but it raises concerns about Q3.
Last August, the financial and commodity derivative exchange posted its best ever volume growth of +78% (equity +155% / interest rate +67%) as the credit crisis began to take hold. So while Citi analyst Donald Fandetti anticipates CME to finish down 25-30% y-o-y in August, he believes any weakness in the stock after this result is posted is a buying opportunity:
While CME’s shares could be weak around the Sept 1 release of the Aug statistics, we’d use this as a buying opportunity as we do not penalise the franchise for a historic spike in volumes last year. If volumes don’t pick up in Sept, there could be some risk to Q3 est’s, yet CME can start buying back stock post the NMX merger close at the end of Aug ($1.1 B authorization). CME is the best positioned global exchange with a dominant position in the US futures market. CME trades at 16.8x our ’09 est. We remain cautious on the market structure sector near-term, but are warming up to the stocks on a longer-term basis given more attractive valuations.
Citi reiterates BUY on CME Group (CME), target $400.
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