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Cboe Global Markets vs. Nasdaq: Which Is the Safer Bet?

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The year 2017 was swamped with a series of events, ranging from rising interest rates to a historical tax reform. Also, rapidly-changing climatic conditions made a substantial impact across the finance sector. But this New Year 2018 buoys fresh hopes, instilling confidence among investors.

The Republican tax plan, passed into law on Dec 22, 2017, marked a huge overhaul of the tax system, slashing the corporate tax rate to 21% from the pre-existent 35% effective January 2018. A lower tax rate would aid the companies’ bottom line as well as boost margins. The tax cut is anticipated to make the finance sector more globally competitive.

Also, the economic growth is gaining traction. Optimistic employment outlook and improving GDP bear testimony for the same.

The Securities and Exchanges industry is of late, characterized by improving trading volumes. This in turn will help improve the clearing and transaction fees. The players in the industry have been witnessing expansion in their average daily volumes.

The Securities and Exchanges industry is mainly dependent on its product and service portfolios to churn out revenues. The major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services as well as trading and clearing systems services. With introduction of new products, which not only cater to the derivatives industry’s demand but also complement the core product lines, the market position and global reach of the key players are anticipated to become stronger.

Interestingly, the Securities and Exchanges industry has been riding on the wave of bitcoin futures that have created a ripple across the finance sector. With the growing popularity of these bitcoin futures, the individual exchanges are launching the same, as more and more investors are expressing their interest in buying the cryptocurrency. On Dec 18, 2017, CME Group Inc. (CME - Free Report) self-certified the initial listing of its Bitcoin futures contract. Although bitcoin has massive growth prospects, investors also need to be careful about investing in the same.

With the global economy raising enough optimism, the Securities and Exchanges industry is sure to benefit from the abovementioned positives. Moreover, a thriving economy is likely to provide enough opportunities to this industry to focus on building a strategic economic market model through technological advances and upgrade of diverse service as well as product offerings. This, in turn, will help the industry stay ahead and maintain a competitive streak amid the volatile industry dynamics.

The Securities and Exchanges industry is ranked at #6 (in the top 2% of the Zacks Industry Rank for 265+ industries), outperforming the S&P 500 index in a year with a surge of 33.3%. While the elite index has climbed 23.0%.

Here we focus on two major players from the Securities and Exchanges industry: Nasdaq, Inc. (NDAQ - Free Report) provides trading, clearing, exchange technology, regulatory, securities listing, information and public company services worldwide while Cboe Global Markets, Inc. (CBOE - Free Report) operates as an options exchange in the United States. While Nasdaq has a market capitalization of $13.4 billion, Cboe Global Markets has $14.8 billion of the same.

It will be interesting to note which stock is better positioned in terms of fundamentals.

Two bullish ranked stocks from the same industry are CME Group and Intercontinental Exchange, Inc. (ICE - Free Report) , holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   

Zacks Rank

Cboe Global Markets sports a Zacks Rank #1 (Strong Buy) with a slight edge over Nasdaq, holding a Zacks Rank of 2.

Price Performance

While Nasdaq has underperformed the industry in a year’s time, Cboe Global Markets has significantly outperformed the same during the same time period. Shares of Nasdaq have rallied 19.5% in a year’s time, while the Cboe Global Markets stock has soared 73.7% in the same time frame. Here, Cboe Global Markets emerges as a clear winner.

VGM Score

Cboe Global Markets carries an unimpressive VGM Score of F, whereas Nasdaq has a VGM Score of D. Here, V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. So, in this case, Nasdaq has an edge over Cboe Global Markets.

Valuation

The price to book value metric is the best multiple used for valuing securities exchanges. Compared with industry’s P/B ratio of 2.98, Nasdaq is underpriced with a reading of 2.33, while Cboe Global Markets is overpriced with a reading of 5.16. Thus, this round evidently goes to Nasdaq as the company’s shares are cheaper in comparison to Cboe Global Markets.



Debt-to-Equity

Both Nasdaq and Cboe Global Markets have higher debt-to-equity ratio compared with the industry average of 24.53. Here, Cboe Global Markets with a leverage ratio of 45.60 has an edge over Nasdaq that records the metric at of 62.58. This round then goes to Cboe Global Markets.



Return on Equity

Both the companies have outperformed the industry in a year’s time. While Cboe Global Markets’ return on equity of 14.70% has outperformed the industry average of 9.92%, Nasdaq’s stood at 12.69%. Thus, Cboe Global Markets wins this round again.



Dividend Yield

Cboe Global Markets’ dividend yield is 0.83% while Nasdaq’s is 1.89%. In this case, Nasdaq’s dividend yield clearly outshines the industry’s average of 1.36%. Nasdaq is a runaway success in this round.



Earnings Estimate Revisions and Growth Projections

The Nasdaq stock has seen the Zacks Consensus Estimate for 2018 earnings being moved 5.8% north to $4.77 per share in the last 60 days, while the consensus mark for Cboe Global Market’s 2018 bottom line has been revised 12.5% upward to $4.49 in the same time span.

For Nasdaq, the consensus estimate for 2018 earnings per share reflects a year-over-year rally of 14.11%. The stock has long-term expected EPS growth of 9.70%.

For Cboe Global Markets, the metric for the current year represents a year-over-year surge of 30.95%. The stock has long-term expected earnings per share growth of 19.70%.

This round goes to Cboe Global Markets.

Earnings Surprise History

Per the companies’ surprise history, Cboe Global Markets surpassed the Zacks Consensus Estimate in all the last four quarters with an average beat of 5.50%. Nasdaq also delivered positive surprises in the trailing four quarters with a four-quarter average beat of 4.00%.

Nasdaq has an Earnings ESP of 0.08%, whereas Cboe Global Markets has 0.57%. Therefore, per our proven model, both these players are anticipated to beat on earnings based on a bullish rank as well as positive ESP.

Here, Cboe Global Markets once more edges past Nasdaq.

To Conclude

Cboe Global Markets is a better pick than Nasdaq on the back of a bullish Zacks Rank, favorable price performance, strong leverage and return on equity ratios, a robust dividend yield, upward earnings estimate revisions and growth projections plus a solid earnings surprise history. Thus, based on our comparative analysis, Cboe Global Markets has a visible advantage over Nasdaq.

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