Sandler O'Neill Cuts Chicago Mercantile Exchange

Analyst Richard Repetto downgrades the stock after management notes a lower rate per contract in first-quarter 2005 than fourth-quarter 2004

Sandler O'Neill cuts the Chicago Mercantile Exchange (CME ) to hold.

Analyst Richard Repetto says record February volume of 3.77 million contracts per day were up 1.1% from January and 50.1% year-over-year.

However, he notes management stated it expects a rate per contract (RPC) for the first-quarter 2005 to be slightly below RPC in fourth-quarter 2004 due to a mix of issues.

With the Chicago Mercantile Exchange up some 15% from his Feb. 2 upgrade, he is taking a more conservative stance, downgrading from buy as he believes the valuation properly reflects volume growth and pricing issues.

Repetto raises his $7.85 2005 earnings per share estimate to $7.87 and his $9.60 2006 earnings per share to $9.65. He adjusts his target to $222, or 23 times his 2006 earnings per share estimate.

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