Traders trying to play protection in a beaten-up market riddled with volatility might discover some aid in alternate operator CME Group, Oppenheimer says. Analyst Owen Lau upgraded CME Group to outperform from carry out, saying in a be aware to shoppers that the alternate operator is an efficient choose for buyers “defending towards the bear.” “Our improve thesis has come all the way down to 4 key factors: 1) enticing valuation; 2) rising rate of interest with low steadiness sheet danger; 3) interesting dividend coverage; and 4) excessive margin and wholesome development profile,” Lau wrote. “The improve is based upon our assumption that no excessive occasions and recession are imminent, and there’s a defensive angle on this name in mild of present volatility and unsure surroundings.” Shares have struggled this 12 months, with the S & P 500 falling 17.3%, as inflation surges to its strongest ranges in a long time and the Federal Reserve tightens financial coverage. Late final week, the benchmark dipped into bear market territory — down greater than 20% from a file shut set in January. Considerations over a possible recession have additionally dented shares in 2022. Whereas the markets and financial system could also be within the “early days” of the Fed’s climbing cycle to curb inflation, rising charges may gain advantage CME as its rate of interest enterprise contains 25% of the corporate’s income, Lau wrote. Among the many causes for the improve, he additionally cited a excessive dividend yield and a robust steadiness sheet. Oppenheimer anticipates CME will pay a $3.75 a share variable dividend by the tip of the 12 months, or a 3.7% complete dividend yield. Shares of CME have plummeted 16.1% because the begin of the 12 months, however Oppenheimer thinks there’s room for development. The agency raised its worth goal on the inventory to $223 a share, which suggests a 16.3% potential return from Tuesday’s shut. “The valuation has come all the way down to an affordable degree that we imagine presents a lovely entry level for buyers,” Lau stated. “Albeit the macro uncertainty, the aggressive moat of CME stays.” — CNBC’s Michael Bloom contributed reporting
