Morningstar has assigned a HOLD rating to CME Group Inc. (NASDAQ: CME), citing its fair valuation and strong business fundamentals. The stock last closed at $250.11, slightly above its fair value estimate of $245.00, making it only marginally overvalued.

The firm benefits from a wide economic moat, low uncertainty, and exemplary capital allocation, reinforcing its dominance in the derivatives exchange market. Despite competitive threats and potential normalization of interest-rate futures trading volumes, CME continues to enjoy robust earnings growth, driven by market volatility and hedging demand.

Morningstar’s report suggests that while CME’s core business remains strong, the current price level limits significant upside potential. Long-term investors may wait for a better entry point below $245, while existing shareholders can hold their positions, given CME’s solid dividend yield of 4.16% and stable earnings trajectory.

1. CME Group: Market Performance and Valuation

Last Close Price: $250.11 (as of February 13, 2025)
Fair Value Estimate: $245.00
Overvaluation Indicator: Price/Fair Value (P/FVE) Ratio at 1.02
Market Capitalization: $89.03 billion
Economic Moat: Wide
Uncertainty Rating: Low
Capital Allocation Rating: Exemplary
Dividend Yield: 4.16%
Morningstar’s analysis indicates that CME stock is fairly valued, and investors should exercise caution before initiating new positions at current levels.

2. Growth Drivers: Market Volatility and Interest-Rate Futures

Trading volume surged 11% in 2024, with interest-rate and commodity futures hitting all-time highs.
Interest rate futures remain CME’s largest revenue generator, benefiting from uncertainty around Federal Reserve policy.
Equity index futures continue to see strong adoption, particularly micro contracts that appeal to retail traders.
Diversified asset class exposure helps CME maintain revenue stability, balancing weak performance in one segment with strength in another.
Morningstar anticipates moderate revenue growth in the mid-single digits going forward, as interest-rate futures normalize after a strong run in 2024.

3. Competitive Position: Strong, But Facing New Challenges

CME commands over 95% of U.S. interest-rate futures trading, giving it a dominant market position.
Exclusive S&P 500 futures licensing provides a long-term advantage, preventing competition from major exchanges.
New entrant FMX has launched an interest-rate futures exchange, creating a potential headwind for CME.
Nasdaq (NDAQ) and Intercontinental Exchange (ICE) remain key competitors, although their futures market presence is weaker.
Morningstar does not expect CME’s dominance to be disrupted in the near term but notes that the FMX threat is worth monitoring.

4. Financial Strength: Profitability and Capital Efficiency

Operating margin: 61.6% (2024), expected to rise to 63.2% by 2028
Net income growth: +11.2% YoY in 2024
Return on equity (ROE): 12.1% (above industry average)
Cash and liquidity: $2.9 billion in cash, strong balance sheet with low debt
CME’s high-margin business model ensures strong free cash flow generation, supporting dividend payouts and potential buybacks.

5. Risk Factors: What Could Go Wrong?

Declining trading volumes in a stable interest-rate environment could lead to revenue deceleration.
Regulatory risks in the derivatives market could impact operations and compliance costs.
Rising competition from new entrants like FMX in the interest-rate futures segment.
Macroeconomic uncertainty and recession risk could lower market activity and impact trading volumes.
Despite these risks, CME’s diversified revenue streams and wide economic moat mitigate downside concerns.

6. Final Verdict: A Strong Business, But Wait for a Better Price

CME Group remains one of the best-positioned companies in the financial exchange space, thanks to its wide moat, diversified product portfolio, and dominant market share. However, at $250.11 per share, the stock is fairly valued, offering limited short-term upside potential.

Morningstar’s HOLD rating suggests that investors wait for a more attractive entry point below $245 before initiating new positions.