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CBOE Holdings: A Strong Buy

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On May 22, 2013, Zacks Investment Research upgraded CBOE Holdings Inc. (CBOE - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

CBOE’s earnings estimates have been gaining traction on the back of improved first-quarter 2013 results. Moreover, the company’s strong operating cash and enhanced liquidity pave the way for investments aimed at long-term growth as well as for effective capital deployment. Additionally, this options exchange delivered positive earnings surprises in all of the last 4 quarters with an average beat of 7.4%.

On May 3, CBOE reported first-quarter 2013 operating earnings per share of 50 cents, which exceeded the Zacks Consensus Estimate of 47 cents and the year-ago quarter number of 37 cents.

The year-over-year upside was primarily attributable to 18% growth in operating revenues, driven by higher index and future volumes along with escalated transaction fee and rate per contract. This was partially offset by a 10% hike in adjusted operating expenses. Subsequently, adjusted operating margin improved to 50.9% from 47.5% in the year-ago quarter. As well, operating cash flow surged 50.6% year over year to $95.3 million.

The steady performance supported the reaffirmation of the company’s guidance for 2013. CBOE’s innovative initiatives in the options and futures spheres are gaining traction. Going ahead,a high earnings visibility, strong product portfolio, consistent cash generation, disciplined investment and limited balance-sheet risk should enable CBOE to be one of the most dynamic companies in the industry, once the economic volatility stabilizes.

Based on CBOE’s fundamental strength, the Zacks Consensus Estimate for 2013 rose 3.1% to $1.97 per share in the last 30 days. The estimate for 2014 is pegged at $2.22, up 3.3% in the last 30 days. Meanwhile, no downward revision in estimates was witnessed for both the years.

Moreover, the Most Accurate Estimate for Markel’s 2013 earnings stands at $2.00 a share, resulting in a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of 1.5%.

Other Stocks to Consider

Apart from CBOE, other stocks that are outperforming in the financial sector include XL Group Plc (XL - Free Report) , Validus Holdings Ltd. (VR - Free Report) and Fleetcor Tech Inc. (FLT - Free Report) . All the stocks carry a Zacks Rank #1 (Strong Buy).

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