CME Reports Solid Fourth-Quarter Results as Higher Rate Volatility Drives Trading Volume Higher

Wide-moat CME Group reported solid fourth-quarter earnings that were largely in line with our expectations as it benefits from the return of interest rate volatility. Net income grew 22.2% year over year, albeit from a weak fourth-quarter 2021, and rose 3.7% sequentially to $595.7 million. Revenue rose 4.4% year over year to $1.15 billion but was up 11% once adjusted for the creation of a post-trade services joint venture with IHS Markit. As we incorporate these results, we are raising our fair value estimate for CME to $213 from $190. Roughly $10 of the increase comes from us no longer projecting a tax rate increase for CME, around $5 comes from earnings since out last update, and the remainder of the increase comes higher expectations for CME’s interest rate and equity futures complexes as these businesses benefited from heightened volatility.