CME Group Inc. (NYSE: CME) is set to report earnings after the close of trading today.  The futures and commodities exchange giant estimates (from First Call) are $3.98 EPS and $644.3 million in revenues.  Exchanges and financial companies do not offer guidance, but next quarter estimates are $4.02 EPS and almost $712 million in revenues.

If the exchange hits its targets from now until the end of the year,the company’s stock has a forward P/E of roughly 16.0.  We would pointout that estimates have come down with the markets over the lastquarter.  While volatility is up and while some days are seeing massivetrading volume, you just have to wonder what the impact of so manyhedge funds and so many active traders being completely blown out ofthe market has done for the future volume.  The exchange doesn’t makemoney by prices rising or falling because the trading volume dictatesthe results.  But if too many participants permanently go out ofbusiness it kills the prospects for growth.

Morgan Stanley was cautious on the forward prospects of the exchangestocks for the reason of potential losses of market participants andfewer traders generating lower volume.  It assigned an "equal weight"rating to the CME.  Just last week, AmTech assigned a "Neutral" ratingto CME.

The good news here is that the merger integration between the ChicagoBoard of Trade and the Chicago Mercantile Exchange actually went muchsmoother than many observers thought it would.  That is not reflectedin the stock price as traders have been betting against exchangevaluations.

There is still much time value left to the options, but based uponmid-morning trading it looks as though options traders are braced for amove or more than $30.00 in either direction.

Its prior support of $320 to $325 which held all summer is likely itsnext major resistance level if the stock starts to rally sharply.

CME shares are down less than 1% at $262.10 today, and its 52-week trading range is $223.32 to $714.48. 

Jon C. Ogg
October 29, 2008

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