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Cboe Global (CBOE) Rallies 41% YTD: Will the Upside Continue?

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Cboe Global Markets (CBOE - Free Report) shares have rallied 41.1% year to date, outperforming the industry’s increase of 19%, the Finance sector’s rise of 7.4% and the Zacks S&P 500 composite’s rally of 19.4% in the same period. With a market capitalization of $18.7 billion, the average volume of shares traded in the last three months was 0.7 million.

Strong market position, global reach, strength in its proprietary products and solid capital position continue to drive CBOE shares. The consensus estimate for 2023 and 2024 earnings of this Zacks Rank #1 (Strong Buy) company has moved up 2.2% and 3.4%, respectively, in the past 30 days, reflecting analysts’ optimism.

CBOE has a solid history of delivering earnings surprises in the last four reported quarters. Its earnings grew 13.7% in the last five years, better than the industry average of 10.5%.

Return on equity, a profitability measure of how efficiently a company utilizes its shareholders' money, was 22.2% in the trailing 12 months, up 100 basis points year over year and better than the industry average of 12.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

Can It Retain the Momentum?

The Zacks Consensus Estimate for 2023 earnings is pegged at $7.53, suggesting a year-over-year increase of 8.7% on 9.8% higher revenues of $1.9 billion. The consensus estimate for 2024 earnings is pegged at $7.97, indicating a year-over-year increase of 5.9% on 4.6% higher revenues of $2 billion. The expected long-term earnings growth rate is 10.2%, better than the industry average of 7.4%.  

CBOE is the largest stock exchange operator by volume in the United States and a leading market globally for ETP trading. Its diversified business mix with recurring revenues, growth acceleration with recurring non-taransaction revenues, technology and prudent buyouts poise it well for growth.

Organic growth has been CBOE’s key strength, as reflected in its revenue growth story. We estimate the 2025 top line to witness a three-year CAGR of 1.1%, fueled by transaction fees.  Increased volatility aids higher trading volumes, which, in turn, fuel transaction fees.

A volatile market drives trading volume, which, in turn, fuels top-line growth. CBOE estimates organic total net revenue growth between 7% and 9% in 2023.

Its inorganic growth story is impressive. Acquisitions helped it achieve a greater global breadth of services and products as well as new distribution channels apart from generating revenue and cost synergies.

The top line also benefits from recurring non-transaction revenues. CBOE estimates Data and Access Solutions organic net revenue growth in the range of 7%-10% in 2023. We estimate access and capacity fees in 2025 to witness a three-year CAGR of 6.3% and 2025 market data revenue to register a three-year CAGR of 4.5%.

CBOE is focusing on improving margins through cost management. It lowered 2023 expense guidance to the range of $754 million to $762 million from $766 million to $774 million, guided earlier.

The exchange has a solid capital management policy that supports it in making strategic investments to drive growth as well as pay back its shareholders. CBOE increased dividends for 13 straight years and has $390 million left under its current share repurchase authorization.

Other Stocks to Consider

Some other top-ranked stocks from the finance sector are CME Group (CME - Free Report) , Coinbase Global (COIN - Free Report) and Berkshire Hathaway Inc. (BRK.B - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CME has a solid track record of beating earnings estimates in the last four quarters, the average being 2.73%. In the past year, CME has gained 22.7%.

The Zacks Consensus Estimate for CME’s 2023 and 2024 earnings per share is pegged at $9.14 and $9.41, indicating a year-over-year increase of 14.7% and 29%, respectively.

COIN has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 62.95%. COIN stock has climbed 15.2% in the past year.

The Zacks Consensus Estimate for COIN’s 2023 and 2024 earnings per share indicates a year-over-year increase of 91.7% and 29.3%, respectively.

Berkshire delivered a trailing four-quarter average earnings surprise of 0.20%. Year to date, the stock has risen 16.5%.

The Zacks Consensus Estimate for BRK.B’s 2023 and 2024 earnings suggests a year-over-year rise of 16.2% and 10.8%, respectively.

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