Oppenheimer says this exchange operator is a defensive play amid volatility
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Oppenheimer suggests that CME Group is a good choice for investors looking to defend a market that has been battered by volatility. CME Group was upgraded by analyst Owen Lau to perform from outperform. He wrote in a note for clients that CME Group is an excellent pick for investors who are “defending against bear.” Lau stated that the upgrade thesis was based on four points. We assume that neither recession nor extreme events are likely, so the upgrade takes into account a defense angle and current uncertainty. Stocks have struggled this year, with the S & P 500 falling 17.3%, as inflation surges to its strongest levels in decades and the Federal Reserve tightens monetary policy. Late last week, the benchmark dipped into bear market territory — down more than 20% from a record close set in January. In 2022, stocks have suffered from concerns over possible recession. CME could be benefited by rising rates, even though the economy and markets are still in “early days,” of the Fed’s hike cycle to curb inflation. Lau explained that CME’s interest rate business accounts for 25% of its revenue. Lau also noted a stable balance sheet and high dividend yield as the main reasons for upgrading. Oppenheimer expects CME to pay a variable dividend of $3.75 per share by year’s end, which would give a total yield of 3.7%. CME’s shares fell 16.1% this year. Oppenheimer however believes that there are still opportunities for growth. According to Oppenheimer, the price target for CME stock has been raised from $223 per share to $223 per share. This implies that there is 16.3% chance of a return after Tuesday’s close. Lau explained that “the valuation has fallen to a reasonable point that we believe offers an attractive entry level for investors.” “Despite macro uncertainties, there is no denying that CME’s competitive moat remains.” — CNBC’s Michael Bloom contributed reporting
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