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Why it is a Wise Idea to Hold CBOE Holdings (CBOE) Stock Now

Zacks Equity Research
Updated

CBOE Holdings, Inc.’s CBOE concerted efforts to expand its proprietary product offerings, boost strategic acquisitions and retain a strong capital position will continue to fuel its prospects. This Zacks Rank #3 (Hold) options exchange looks high on potential, banking on a number of growth drivers.

Positive Growth Projections: The Zacks Consensus Estimate for earnings per share is $3.40 on revenues of $988.8 million for 2017. While the top line reflects a year-over-year increase 53.29%, the bottom line surges 40.29%. For 2018, the Zacks Consensus Estimate for earnings per share is pegged at $3.88 on $1.12 billion revenues. While earnings represent a 14.4% rally, revenues reflect a 13.4% rise.

CBOE Holdings has long-term expected earnings per share growth of 16.8%, better than the industry average of 11.8%.

North Bound Estimates: The Zacks Consensus Estimate has witnessed upward revisions in the last 30 days. While the estimates for 2017 have inched up 0.6% in the last 30 days, the same for 2018 has nudged up 0.3% over the same time frame.

An Outperformer: CBOE Holdings’ shares have surged 31.4% year to date, outperforming the industry’s gain of 14.1%. The shares have also outperformed the S&P 500, increasing 8.6% over the same period.


Positive Earnings Surprise History: CBOE Holdings has surpassed the Zacks Consensus Estimate in the last four quarters, with an average beat of 5.66%.

Growth Drivers in Place

Improving transaction fees, backed by an increasing trading volume, continue to fuel revenue rise for CBOE Holdings. Given its robust market position and a global reach with strength in proprietary products, primarily SPX options, VIX options and VIX futures, the company’s success streak is expected to sustain ahead.

CBOE announced to wrap up the C2 options exchange in May 2018 and the migration of CBOE’s futures exchange to the Bats platform in February, next year.  The company also intends to implement a new index technology platform by the first half of 2018.

CBOE Holdings boasts a compelling inorganic growth story given its prudent acquisitions. With respect to the Bats Global Markets takeover, CBOE Holdings estimates to achieve $50 million in annualized expense synergies within three years of the buyout. It is expected to increase to $65 million within five years of the transaction’s closure. The company estimates a hefty sum of $20 million in GAAP run rate synergies for 2017. This transaction will be accretive to the acquirer’s bottom line in the first year, post the wind-up of the acquisition.

CBOE Holdings enjoys a strong liquidity position despite cash outlays. While the company has effectively lowered its debt by $225 million in the first half of 2017, it has more than doubled its quarterly dividend since 2010, hiking it every year.

Stocks to Consider

Some better-ranked stocks from the same industry are Atlas Financial Holdings, Inc. AFH, Markel Corporation MKL and Mercury General Corporation MCY, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial underwrites commercial automobile insurance policies in the United States. The company delivered a four-quarter average positive surprise of 57.94%.

Markel markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in the last four quarters with the average beat of 21.06%.

Mercury General writes personal automobile insurance in the United States. The company delivered positive surprises in the trailing four quarters with the average beat being 1.06%.  

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Markel Corporation (MKL) : Free Stock Analysis Report
 
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CBOE Holdings, Inc. (CBOE) : Free Stock Analysis Report
 
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