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Analyst Blog

According to recent media reports, CBOE Holdings Inc. (CBOE - Free Report) is contemplating the acquisition of Bats Global Markets (BATS - Free Report) . Though the takeover is yet to be officially announced, shares of Bats Global have already surged about 24% in the after-market trading session on Sep 23, amid the buyout rumors. Notably, Bats Global went public just five months ago, in April this year.

CBOE Holdings has been facing intense competition due to increased market consolidation that tends to reduce market share and leverage of business. Hence, strategic acquisitions like this are expected to help the securities exchange retain its market share. Also, the industry is trying to counter soft trading volumes and contracting margins with more consolidations. CBOE Holdings, the largest U.S. options exchange and creator of listed options, is following suit. The securities exchange’s August results saw the average daily volume declining 31% in spite of two more trading days than the year-ago period.

CBOE Holdings eyes strategic acquisitions to gain a competitive edge by diversifying as well as adding capabilities to its portfolio. This May, the securities exchange purchased stakes in Eris Exchange Holdings, LLC, a U.S.-based futures exchange group offering swap futures as a capital-efficient alternative to over-the-counter swaps.

If the deal materializes, we expect the acquisition to be supported by CBOE Holdings’ strong liquidity and steady capital position. Strong liquidity not only mitigates balance sheet risks but also paves the way for accelerated capital deployment by undertaking strategic acquisitions, shareholders friendly moves and growth initiatives.

CBOE Holdings is currently carrying Zacks Rank #4 (Sell). With optimism over the recently proposed acquisition we expect analysts to raise their estimates, in turn, leading to a possible rank upgrade. Bats Global carries Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the finance sector includes MarketAxess Holdings Inc. (MKTX - Free Report) and Cincinnati Financial Corp  (CINF - Free Report) carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarketAxess is a leading multi-dealer trading platform that offers institutional investors access to global liquidity in products like U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives and other fixed-income securities. The Zacks Consensus Estimate for 2016 and 2017 has witnessed upward estimate revision over the last 60 days

Cincinnati Financial, a property casualty insurer has witnessed upward revision in the Zacks Consensus Estimate over the last 60 days for both 2016 and 2017.

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