CME GROUP INC (NASDAQ:CME) – A Quality Stock with Strong Fundamentals

CME GROUP INC (NASDAQ:CME) was identified through our Caviar Cruise screen, which focuses on high-quality companies with strong financial metrics. CME stands out due to its profitability, efficient capital allocation, and solid cash flow generation. Below, we examine why this stock fits the criteria for quality investors.

Key Strengths of CME Group

• High Return on Invested Capital (ROIC): CME’s ROIC (excluding cash and goodwill) is an impressive 139.44%, well above the 15% threshold for quality stocks. This indicates exceptional efficiency in generating profits from invested capital.
• Strong EBIT Growth: Over the past five years, CME’s EBIT grew at a 19.95% annual rate, outpacing its revenue growth of 4.46%, a sign of improving profitability.
• Low Debt Burden: The company’s debt-to-free cash flow ratio is just 0.91, meaning it could pay off all its debt in less than a year using current cash flows.
• High Profit Quality: CME converts 105.5% of its net income into free cash flow, demonstrating reliable earnings quality.

Fundamental Analysis Summary

Our report assigns CME a 5/10 rating, reflecting mixed but generally favorable fundamentals:

• Profitability (7/10): Strong margins and ROIC, though profit margins have slightly declined.
• Dividend (5/10): A 3.76% yield with a long history of increases, but payout sustainability is a concern.
• Financial Health (5/10): Low debt but a weak Altman-Z score raises some solvency questions.
• Valuation (2/10): The stock appears expensive, trading at a P/E of 26.9, above industry averages.
• Growth (4/10): Stable EPS growth but slowing revenue expansion.

Why Quality Investors Might Consider CME

Despite valuation concerns, CME’s high ROIC, strong cash flow, and leadership in derivatives markets make it a candidate for long-term investors. Its ability to maintain profitability while managing debt responsibly aligns with quality investing principles.

For more stocks meeting the Caviar Cruise criteria, explore our Caviar Cruise screener.

Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.