CME GROUP INC. (CME): what the price requires
At today's price, CME GROUP INC. (CME) is priced for +5.4% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/CME
Headline
| Field | Value |
|---|---|
| Ticker | CME |
| Company | CME GROUP INC. |
| Current price | $245.03/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 20.8% |
| Operating margin today | 66.9% |
| Margin compression implied | -46.1pp |
| Implied growth | 5.4% |
| Multiple paid | 19x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7.9% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.2pp.
Reconcile: at the x-ray's 9.3% required return this reads ~14.7%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.36σ |
| cohort percentile (of 16 peers) | 50 |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.76x | 5 | expensive |
| Earnings | 2.25x | 5 | expensive |
| Relative | 1.24x | 4 | expensive |
| Growth | 0.90x | 4 | justifies |
Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.7%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $277.15 | 0.88x | yes | FCF base $4.6B, growth 8% (input: historical growth), terminal g 4.0%, WACC 8.7%, 6yr projection |
| DCF Exit Multiple | Growth | $265.25 | 0.92x | yes | Exit EV/EBITDA: 19.2x / 21.2x / 23.2x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $185.18 | 1.32x | yes | P/E 14.65x (blended: static sector reference 12x + trailing (TTM) 21x), scenarios: 12.2x / 14.7x / 17.1x (bear / base = reference held flat / bull), EV/EBITDA N/Ax |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $975.21 | 0.25x | yes | Stage 1: 18% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $127.10 | 1.93x | yes | BV/sh $73.29, ROE (TTM) 16.0%, ke 9.3% |
| Two-Stage Excess Return | Asset | $165.26 | 1.48x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $122.37 | 2.00x | yes | Rev $6.8B, growth 8% (input: historical growth; tapered), Terminal P/S: 6.7x / 8.0x / 9.3x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $211.22 | 1.16x | yes | EPS $11.72, growth 18% (input: historical EPS growth), PEG=1.16 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $66.11 | 3.71x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $3.57B × (1−24%) / WACC 8.7% → EPV (no growth) |
| Residual Income | Asset | $167.94 | 1.46x | yes | BV $73.29 + 5yr PV of (ROE (TTM) 16.0% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $139.02 | 1.76x | yes | √(22.5 × EPS $11.72 × BVPS $73.29) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | — | — | no | — |
| FCF Yield | Earnings | $108.88 | 2.25x | yes | FCF $4329.3M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $106.02 | 2.31x | yes | SBC-adj FCF $4.23B (FCF $4.33B − SBC $0.10B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $378.17 | 0.65x | yes | EPS $11.72 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $24.83 | 9.87x | yes | BV $73.29 × (ROIC 3.0% / WACC 8.7%) |
| P/Sales Sector | Relative | $55.82 | 4.39x | yes | Revenue $6.76B × sector P/S 3.0x |
| PEG Fair Value | Relative | $316.83 | 0.77x | yes | EPS $11.72 × (PEG 1.5 × growth 18.0% (input: historical EPS growth)) → PE 27.0x |
| Earnings Yield | Earnings | $126.70 | 1.93x | yes | EPS $11.72 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $2.5b |
| Net debt / NOPAT (after-tax) | -0.71x (net cash) |
| Net debt / operating income (pre-tax) | -0.55x (net cash) |
| Share count CAGR (dilution) | 0.3% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- CME Group runs the dominant marketplace for interest-rate, equity, energy, agricultural, metals, and currency futures, and the distinctive fact is the economics: a trailing operating margin around 65% on revenue of about $6.8 billion, the signature of a toll booth on global hedging.
- The defining risk is competition for its crown jewel: a new entrant is taking share in cash Treasury trading and pushing into the futures CME has long owned, the first real challenge to its rate-products near-monopoly in years.
- What to watch is volume, which set records across all six asset classes in the first quarter, because at a near-fixed cost base every additional contract traded drops almost entirely to profit.
Bull Case
Read CME at its stage and the bull case is about owning a mature franchise that compounds without needing to reinvent itself. This is the deepest, most liquid futures marketplace in the world, and liquidity is a self-reinforcing moat: traders go where the volume already is, because that is where they can enter and exit without moving the price, which draws more volume still. The economics that flow from that are extraordinary, a trailing operating margin around 65%, because once the matching engine and clearinghouse exist, each additional contract costs almost nothing to process. That is the toll-booth model in its purest form, and it produced first-quarter revenue up 14% to about $1.9 billion and net income up 21% on record average daily volume of 36.2 million contracts.
The balance sheet matches the quality of the business. CME carries net cash of roughly $2.5 billion with essentially no debt, which is exactly what you want from a clearinghouse whose entire value proposition is being the trustworthy counterparty that never fails. That financial fortress lets the company return enormous amounts of capital, and it does, paying a regular dividend alongside the large variable annual dividend that is a hallmark of its capital-return policy. Return on equity in the mid-teens on a business with this margin profile means the franchise generates far more cash than it needs, and it hands the surplus back.
The growth is real even for a mature exchange. Volume is structurally tied to volatility and to the need to hedge, and an environment of elevated geopolitical and macroeconomic uncertainty drives more of both; the first quarter set records in all six asset classes at once, with US Treasury futures hitting an all-time high and international volume up 30%. CME is also extending into new arenas, launching 24/7 cryptocurrency futures and piloting asset-tokenization on cloud infrastructure, optionality on top of the core. The price reflects this as a durability premium: the asset, earnings-power, and peer-multiple methods all read it as richly valued, and only the growth-dependent methods reach the price, which is the market paying for the compounding that a fortress-margin, capital-light monopoly can deliver.
Bear Case
The external variable with the most leverage on CME's thesis is competition for its rate-products franchise, and for the first time in years it is real. A new entrant is taking cash Treasury market share at a fast clip and pushing into the SOFR and Treasury futures that have been CME's most profitable and most defended territory. Interest-rate products are the largest contributor to the volume that drives the whole machine, and a credible challenger offering an alternative clearing venue is precisely the kind of structural threat a near-monopoly is most vulnerable to, because the liquidity moat that protects CME is the same moat a competitor must crack to win, and if it gets a foothold the self-reinforcing dynamic can start to run the other way. The bull case treats CME's dominance as permanent; the bear case is that dominance is being contested where it matters most.
The business is also more cyclical than its steady-compounder reputation suggests. Exchange revenue is a function of trading volume, and volume rises with volatility and uncertainty. The record first quarter was driven by exactly the elevated geopolitical and macroeconomic turbulence that boosts hedging demand; a return to calm markets, or a sustained low-rate, low-volatility regime, would reduce the need to trade the very rate products that lead the volume mix. The peer structure underscores how volume-dependent the model is. Intercontinental Exchange describes its own derivatives revenue resting on "Derivatives trading and clearing fees" tied to transaction performance obligations, the same volume sensitivity that means a quiet year is a weaker year for any exchange, CME included.
On valuation, the bear note is one of price rather than quality. This is a superb business, but the price already pays for it. At roughly 19 times operating income, the asset-value, earnings-power, and peer-multiple methods all land below the price; only the growth-dependent methods reach it, which means the premium rests on durable mid-single-digit growth persisting for years. working the price backward shows it implies operating growth around 6% a year for five years, which is within the company's recent pace but assumes the competitive threat does not bite and the volume tailwind does not fade. The balance sheet removes any solvency concern, net cash and no debt, so the downside here is not financial distress. It is multiple compression if the rate-products franchise loses share or if volumes normalize from a turbulence-driven peak, and a premium-priced compounder has little cushion for either.
Valuation
The price for CME embeds a modest, achievable assumption, which is what makes the valuation question more about quality than about heroics. At roughly 19 times operating income, the price implies company-wide operating growth of about 6% a year for five years, a pace within what the company has recently delivered. The stretch is not the rate; it is the persistence, the assumption that a dominant exchange holds its franchise and its volume long enough to earn that growth. For a business with a 65% operating margin and a near-monopoly in its core products, that is a more reasonable bet than the same multiple would be on a cyclical industrial.
The method disagreement is the familiar shape for a high-quality compounder. The asset-value methods, anchored on book value around $73 a share and a mid-teens return on equity, land below the price. The earnings-power methods, capitalizing the steady fee stream with no growth, land far below it, because a no-growth lens cannot frame a franchise whose whole value is durable compounding. The peer-multiple methods land modestly below. Only the growth-dependent cash-flow methods reach the price, crediting the high-single-digit growth forward. When the static methods say richly valued and only the growth methods reach the price, the price is a durability premium, the market paying for compounding that the backward-looking lenses structurally cannot price. The honest read is that the premium is defensible given the moat, and the debate is whether the competitive threat to rate products dents the durability the premium assumes.
Solvency is a non-issue and a positive. CME holds net cash of roughly $2.5 billion against negligible debt, which is exactly right for a clearinghouse whose business model depends on being the counterparty that cannot fail; the balance sheet is itself part of the moat. The capital-return profile, a regular dividend plus the large variable annual dividend, is how the franchise distributes its surplus, and the share count is essentially flat, so the return comes through dividends rather than buybacks. The decisive variable is volume durability, set against the new competition in rate products. The price is not betting on a transformation; it is betting that the toll booth keeps collecting at current rates, and the valuation rests on the credibility of that bet rather than on any balance-sheet risk.
Catalysts
The volume cadence is the recurring catalyst, and it is running hot. The first quarter of 2026 set a record with average daily volume up 22% to 36.2 million contracts and records across all six asset classes, with US Treasury futures hitting an all-time high and international volume up 30%, driving revenue up 14% to about $1.9 billion and net income up 21%. Because the cost base is nearly fixed, each quarter's volume is the cleanest read on earnings, and the monthly volume disclosures between earnings give an early signal on whether the elevated-uncertainty tailwind is holding.
The competitive catalyst is the one to watch most closely. A new entrant is taking cash Treasury share and pushing into SOFR and Treasury futures, the products at the heart of CME's volume and margin. Any sign that the challenger is winning meaningful open interest in CME's listed futures, as opposed to cash Treasuries, would be the development that tests the durability premium the valuation rests on. CME's response, including extending its cross-margining efficiencies to more clients, is part of the defense.
New-product expansion is the optionality catalyst. CME launched 24/7 trading in cryptocurrency futures and options and is piloting wholesale-payment and asset-tokenization solutions on cloud infrastructure, moves that extend the franchise into adjacent markets. Capital return remains a steady catalyst: the regular quarterly dividend, recently $1.30 with a yield around 4%, sits alongside the large variable annual dividend the company is known for. Analyst sentiment is constructive, a Moderate Buy with targets clustered in the low-$300s, above the current price and reflecting confidence that the volume franchise holds.
Peer Cohorts (Per Segment, With Filing Citations)
Derivatives & cash markets exchange (single operating segment) (reported)
- ICE (Intercontinental Exchange Inc)
- (no filing in the citation store)
- CBOE (Cboe Global Markets, Inc.)
- (no filing in the citation store)
- NDAQ (Nasdaq, Inc.)
- (no filing in the citation store)
- TW (Tradeweb Markets Inc.)
- (no filing in the citation store)
- MKTX (MARKETAXESS HOLDINGS INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 earnings release · industry and analyst reports, 2026 · company disclosures, 2026 · company dividend declaration, 2026 · analyst notes, 2026