CME

Just wondering why this stock hasn't moved over the last month or two -- volumes are up big time yet the stock is not moving? either this is a great opportunity or I'm missing something. Hmmmmm... probably a combination of both.



volumes are up but customers get volume discounts so the rate per contract will be dropping.



Could it be that the merger is dilutive and that the big volumes are masking its real impact?



or is it merely that the stock is flat most of the time with a step function jump when they report earnings?

Ah Ha! did some more reading and thinking and I believe I have the answer -- less interest income.

the BMO Capital markets analyst abbreviated model that I have shows revenues (proforma for the deal) up 15% Q/Q and operating income up 25% Q/Q but EPS up only 8%. At first I figured it was due to the 50% jump in shares but then I looked at Q2 numbers and realized that adding CBOT's income would result in about a 50% increase in CME group's income so that wasn't it.

Then I remembered CME paid a dividend (to CBOT shareholders) of close to $500 mill as part of the deal and even though the share buyback auction was very under subscribed, they still spent hundreds of millions buying back stock. So last quarter they had between the two of them close to $25 mill in interest and other non-operating income or about 8% of the total.

If you take away that income, then unless volume surges like it has, EPS would have declined sequentially. So the volume surge has helped to keep estimates where they were -- flat estimates = flat stock. have to think about whether it makes sense then to add to the stock. Its still possible that analysts are underestimating the numbers -- they do produce lots of cash flow so the hit to income may not be as bad as some are assuming.

interesting huh?