Critical Analysis: CME Group (NASDAQ:CME) vs. Hong Kong Exchanges and Clearing (OTCMKTS:HKXCY)

CME Group (NASDAQ:CME) and Hong Kong Exchanges and Clearing (OTCMKTS:HKXCY) are both financial services companies, but which is the superior investment? We will compare the two companies based on the strength of their earnings, valuation, dividends, risk, institutional ownership, analyst recommendations and profitability.

Institutional & Insider Ownership

87.8% of CME Group shares are held by institutional investors. Comparatively, 0.2% of Hong Kong Exchanges and Clearing shares are held by institutional investors. 0.3% of CME Group shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Analyst Ratings

This is a summary of recent ratings and target prices for CME Group and Hong Kong Exchanges and Clearing, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
CME Group	4	7	4	0	2.00
Hong Kong Exchanges and Clearing	0	0	0	0	N/A

CME Group presently has a consensus price target of $222.07, indicating a potential downside of 3.32%. Given CME Group’s higher probable upside, analysts clearly believe CME Group is more favorable than Hong Kong Exchanges and Clearing.

Valuation and Earnings

This table compares CME Group and Hong Kong Exchanges and Clearing”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
CME Group	$5.80 billion	14.17	$3.23 billion	$8.79	25.96
Hong Kong Exchanges and Clearing	N/A	N/A	N/A	$3.96	10.14

CME Group has higher revenue and earnings than Hong Kong Exchanges and Clearing. Hong Kong Exchanges and Clearing is trading at a lower price-to-earnings ratio than CME Group, indicating that it is currently the more affordable of the two stocks.

Dividends

CME Group pays an annual dividend of $4.60 per share and has a dividend yield of 2.0%. Hong Kong Exchanges and Clearing pays an annual dividend of $1.01 per share and has a dividend yield of 2.5%. CME Group pays out 52.3% of its earnings in the form of a dividend. Hong Kong Exchanges and Clearing pays out 25.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. CME Group has increased its dividend for 14 consecutive years. Hong Kong Exchanges and Clearing is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares CME Group and Hong Kong Exchanges and Clearing’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
CME Group	56.98%	12.82%	2.75%
Hong Kong Exchanges and Clearing	N/A	N/A	N/A

Summary

CME Group beats Hong Kong Exchanges and Clearing on 11 of the 13 factors compared between the two stocks.

About CME Group

CME Group Inc., together with its subsidiaries, operates contract markets for the trading of futures and options on futures contracts worldwide. It offers futures and options products based on interest rates, equity indexes, foreign exchange, agricultural commodities, energy, and metals, as well as fixed income and foreign currency trading services. The company also provides clearing house services, including clearing, settling, and guaranteeing futures and options contracts, and cleared swaps products traded through its exchanges; and trade processing and risk mitigation services. In addition, the company offers a range of market data services, including real-time and historical data services. It serves professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, governments, and central banks. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. The company was founded in 1898 and is headquartered in Chicago, Illinois.

About Hong Kong Exchanges and Clearing

Hong Kong Exchanges and Clearing Limited, together with its subsidiaries, owns and operates stock exchanges and futures exchanges, and related clearing houses in Hong Kong, Mainland China, and the United Kingdom. It operates through Cash, Equity and Financial Derivatives, Commodities, and Data and Connectivity segments. The Cash segment covers various equity products traded on the cash market platforms of the Stock Exchange of Hong Kong Limited, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange; clearing, settlement and custodian, listing, depository, and nominee services; and other related activities. The Equity and Financial Derivatives segment provides and maintains trading platforms for a range of equity and financial derivative products, such as stock and equity index futures and options, derivative warrants, callable bull/bear contracts and warrants, and over the counter (OTC) derivatives contracts. The Commodities segment operates an exchange for the trading of base, ferrous, and precious metals futures and options contracts in the United Kingdom; and operates Qianhai Mercantile Exchange Co., Ltd., a commodity trading platform in the Mainland. This segment also covers commodities contracts traded on Futures Exchange. The Data and Connectivity segment offers various services that provides access to the platform and infrastructure, as well as services of BayConnect Technology Company Limited; network, terminal user, data line and software sublicense, and hosting services; and sells market data relating to the Hong Kong cash and derivatives markets. The company serves issuers and investors. Hong Kong Exchanges and Clearing Limited was incorporated in 1999 and is based in Central, Hong Kong.