Yahoo Finance Here's Why Hold Strategy is Apt for Cboe Global (CBOE) Stock
Cboe Global Markets’ CBOE strong market position, global reach, proprietary products strength and solid capital position poise it well for long-term growth. These, along with solid growth projections, make the stock worth retaining.
This Zacks Rank #3 (Hold) company has a VGM Score of A. The score helps to identify stocks with the most attractive value, growth and momentum.
Price Performance
Shares of CBOE have rallied 23.7% year to date, compared with the industry’s increase of 32.3%.
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Optimistic Growth Projection
The Zacks Consensus Estimate for 2024 earnings is pegged at $8.51, suggesting a year-over-year increase of 9.1% on 7.5% higher revenues of $2.1 billion. The consensus estimate for 2025 earnings is pegged at $9.03, suggesting a year-over-year increase of 6.1% on 4.7% higher revenues of $2.2 billion.
The expected long-term earnings growth rate is 14.3%, better than the industry average of 8%. We expect the 2026 bottom line to witness a three-year CAGR of 6.2%. The company has a Growth Score of A. This style score analyzes the growth prospects of a company.
Northbound Estimates
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved up 0.7% and 0.9%, respectively, in the past 30 days, reflecting analysts’ optimism.
Return on Capital
Return on invested capital ("ROIC) has hovered around 10% over the last few years and outperformed the industry average in the trailing 12 months. ROIC was 11.4% compared with the industry average of 4.8%. The company has raised its capital investment significantly, which reflects its efficiency in utilizing funds to generate income.
CBOE’s trailing 12-month return on equity is 22.1%, ahead of the industry average of 13.1%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
What’s Driving the Stock?
This largest stock exchange operator by volume in the United States and a market leader globally for ETP trading is poised to grow from its diversified business mix with recurring revenues, growth in recurring non-transaction revenues, use of technology and prudent buyouts.
CBOE’s strength lies in organic growth as reflected in its revenue growth story. We expect the 2026 top line to witness a three-year CAGR of 3.1%. Improving transaction fees should help it retain momentum.
Transaction and clearing fees should gain from a volatile market driving trading volume. This apart, recurring and increasing non-transaction revenues, driven by higher access and capacity fees and market data revenues, should add to the upside.
Through strategic acquisitions, CBOE expanded its services and products portfolio globally, apart from generating revenues and cost synergies. Buyouts also helped it gain new distribution channels.
CBOE remains focused on improving margins through cost management.
A solid capital management policy supports strategic growth investments as well as capital payout. As part of the distribution of wealth to shareholders, CBOE increased dividends for 13 straight years. Its dividend yield is 1.2%. As of Mar 31, 2024, it had approximately $294.8 million remaining under its existing share repurchase authorization. Given continued strong free cash flow generation, the company intends to continue buying back shares.
Risks
Despite the upside potential, there are a few factors that investors should keep an eye on. Cboe Global's elevated expenses remain a major concern. Given the increases in marketing and advertising expenses, higher purchased hardware, increases in office rent and real estate taxes, primary data center hosting expenses, expenses are likely to trend higher, thus weighing on margins.
Cboe Global has been facing intense competition due to increased market consolidation that tends to reduce market share and leverage of the business. This includes both product and price competition, which are continuously increasing due to the creation of new execution and listing venues in the United States. As a result, Cboe Global’s market share has witnessed a decline over the last few years.
Stocks to Consider
Some better-ranked stocks from the finance sector are Coinbase Global COIN, First BanCorp FBP and Morgan Stanley MS.
Coinbase delivered a trailing four-quarter average earnings surprise of 364.63%. COIN stock has gained 35.6% year to date. The Zacks Consensus Estimate for COIN’s 2024 EPS indicates a year-over-year increase of 1,804.5%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for First BanCorp’s 2024 and 2025 EPS indicates a year-over-year increase of 3.5% and 6.2%, respectively. Year to date, FBP has gained 6.5%. First BanCorp delivered a trailing four-quarter average earnings surprise of 17.05%. It has a Zacks Rank #2 (Buy)
Morgan Stanley delivered a trailing four-quarter average earnings surprise of 11.15%. Year to date, the stock has risen 4.6%. The Zacks Consensus Estimate for MS’s 2024 and 2025 earnings suggests a year-over-year rise of 25.1% and 13%, respectively. It has a Zacks Rank #2.
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Morgan Stanley (MS) : Free Stock Analysis Report
Cboe Global Markets, Inc. (CBOE) : Free Stock Analysis Report
First BanCorp. (FBP) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
