Now that the CME Group’s (CME) shareholders have finally approved the NYMEX acquisition, the deal was able to close this past Friday, creating a derivatives exchange with $3 billion in revenue.
Recent disclosures indicate that the transaction would have been $1.45 dilutive to CME’s ’07 EPS, so Deutsche has adjusted their 2008 and 2009 estimates downward to reflect merger dilution. The weaker volumes and tough comparables ahead also forced the bank to maintain its HOLD rating:
In August CME is showing a 39% decline in average daily volume compared to a record August 2007, pointing to very tough comparables in the second half of 2008 (and driving reduced ests). While we feel that NYMEX transaction is likely to strengthen CME’s competitive positioning in the long term, the near-term dilution will likely exacerbate weak volume trends, causing negative year-over-year EPS comparisons. We feel that CME stock is likely to remain weak until volume comparisons ease or secular trends toward greater derivatives usage resume.
Deutsche maintains HOLD on CME Group (CME), target cut from $435 to $390.
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