CME CME Group
A best-in-class derivatives toll road, but a price near 270 already assumes margins stay at their peak.
The story
CME is the dominant global derivatives venue, with near-monopoly liquidity in rate, equity-index, energy and ag futures. Open-interest network effects, clearing integration and product IP form a durable moat. It is a mature, capital-light cash machine whose growth comes from volatility-driven volumes, pricing power, market data and a slow push into retail and 24/7 products. Cyclical volume tailwinds have lifted margins above long-run norms.
I kept every driver except margin. TTM operating margin has held above 84% for a full year, so I raised the target from 0.78 to 0.82, a non-material move. It still assumes some fade as rate and energy volatility normalizes and competitive and fee pressure builds. Growth, reinvestment and risk inputs are unchanged because nothing structural has changed in the franchise.
Value drivers
| Revenue growth (Y1) | 6.5% |
| Terminal growth | 3.5% |
| Forecast horizon | 10y |
| Target operating margin | 70.0% |
| Years to target margin | 5 |
| Sales-to-capital | 1.80 |
| Beta | 0.85 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.0% |
| Terminal WACC | 9.7% |
Valuation bridge
| PV of explicit FCFF | 30.41B |
| PV of terminal value | 31.19B |
| Equity value | 61.97B |
| ÷ shares → per share | $172.33 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 7.21B | 6.5% | 82.1% | 4.53B | 244.57M | 4.28B | 3.93B |
| 2 | 7.66B | 6.2% | 79.1% | 4.63B | 247.11M | 4.38B | 3.69B |
| 3 | 8.10B | 5.8% | 76.1% | 4.71B | 248.16M | 4.46B | 3.44B |
| 4 | 8.55B | 5.5% | 73.0% | 4.77B | 247.63M | 4.52B | 3.20B |
| 5 | 8.99B | 5.2% | 70.0% | 4.81B | 245.42M | 4.56B | 2.97B |
| 6 | 9.43B | 4.8% | 70.0% | 5.04B | 241.45M | 4.80B | 2.86B |
| 7 | 9.85B | 4.5% | 70.0% | 5.27B | 235.66M | 5.03B | 2.75B |
| 8 | 10.26B | 4.2% | 70.0% | 5.49B | 228.02M | 5.26B | 2.64B |
| 9 | 10.65B | 3.8% | 70.0% | 5.70B | 218.52M | 5.48B | 2.52B |
| 10 | 11.03B | 3.5% | 70.0% | 5.90B | 207.17M | 5.69B | 2.40B |
Key risks
- Volumes normalize as rate volatility subsides, reversing operating leverage
- Competitive entrants (FMX, Coinbase/crypto venues, 24/7 retail platforms) pressure fees in Treasury and retail products
- Regulatory changes to clearing, margin or position limits
Catalysts
- Sustained high open interest from fiscal deficits and rate uncertainty
- Growth in market-data, retail micro contracts and international participation