CME Group Inc.CMENASDAQ

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $368.28 per share(market-calibrated)

+13.3%

Upside to Fair Value

Current

$325.13

Pure Model

$383.57

Fair Value

$368.28

Bull Case

$440.40

Bear Case

$314.74

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

2.20%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $383.57.

What's Driving This Ratingfor CME

✓

CapEx already efficient

CapEx at 1.44% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 89.73% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 6.42% in Year 1 to 1.77% by Year 5 (per analyst consensus). That's below the 2.50% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $470.83/share (32.1x terminal FCF) while exit multiple gives $296.30/share (15.9x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.62% indicates efficient cash generation. FCF reaches $6.7B by Year 10 (71.71% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.28

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.76%

Cost of Debt

Pre-tax Cost of Debt4.56%

Tax Rate23.89%

After-tax Cost of Debt3.47%

Equity Weight (E/V)97.16%

Debt Weight (D/V)2.84%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (97.16% × 5.76%) + (2.84% × 3.47%)

= 5.69%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$6.9B	$7.9B	$8.4B	$8.8B	$9.4B
EBIT	$6.2B	$7.1B	$7.6B	$7.9B	$8.4B
Tax	$1.5B	$1.7B	$1.8B	$1.9B	$2.0B
NOPAT	$4.7B	$5.4B	$5.8B	$6.0B	$6.4B
+ Depreciation	$353M	$403M	$429M	$446M	$479M
- Capex	$100M	$114M	$122M	$126M	$136M
- Δ NWC	$42M	$60M	$15M	$18M	$23M
Free Cash Flow	$5.0B	$5.6B	$6.0B	$6.3B	$6.7B
Discount Factor	0.946	0.847	0.758	0.679	0.575
Present Value	$4.7B	$4.8B	$4.6B	$4.3B	$3.9B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.7B

Terminal Growth Rate2.50%

WACC5.69%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$216.1B

PV of Terminal Value$124.2B

Exit Multiple Method

Year 10 EBITDA$8.9B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$106.9B

PV of Terminal Value$61.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$44.1B

PV of Terminal Value$124.2B

Enterprise Value$168.3B

(-) Net Debt-$1.0B

Equity Value$169.3B

Shares Outstanding360M

Price per Share$470.83

Exit Multiple Method

PV of Projected FCFs$44.1B

PV of Terminal Value$61.4B

Enterprise Value$105.6B

(-) Net Debt-$1.0B

Equity Value$106.6B

Shares Outstanding360M

Price per Share$296.30

Pure Model Fair Value

$383.57

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.69%	$543.46	$559.66	$537.92	$517.19	$497.40
4.69%	$413.85	$449.84	$502.22	$517.19	$497.40
5.69%	$341.12	$359.47	$383.57	$416.60	$464.69
6.69%	$292.98	$303.70	$316.97	$333.83	$355.96
7.69%	$257.94	$264.75	$272.87	$282.72	$294.92

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$314.74

-3.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.35

Base Case

$383.57

18.0% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.28

Bull Case

$440.40

35.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.42%

Year 3 Revenue Growth8.23%

Year 5 Revenue Growth1.77%

Year 7 Revenue Growth2.06%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin89.73%

Tax Rate23.89%

Historical Capex / Rev1.44%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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