Why Is CBOE (CBOE) Down 2.6% Since Last Earnings Report?

A month has gone by since the last earnings report for CBOE Holdings (CBOE). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CBOE due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Cboe Global Q3 Earnings Beat Estimates, Revenues Lag

Cboe Global Markets, Inc.’s third-quarter 2018 adjusted earnings of $1.06 per share beat the Zacks Consensus Estimate of $1.01 by 4.9%. Moreover, the bottom line improved nearly 19.1% year over year.

The reported quarter benefited from better revenues and delivered solid cash flow. The company remains committed to a disciplined expense management while executing its important strategic growth initiatives and working toward adding long-term shareholder value.

Operational Details

Total revenues came in at $270.5 million, missing the Zacks Consensus Estimate by 0.6%. However, the top line inched up 0.3% year over year.

Average daily volume for Options dipped 0.3% year over year while the average revenue per contract or RPC slipped 1.2% in the third quarter.

Total RPC for U.S. Futures decreased 2.7% year over year to $1.704 million. The company’s ADV also slid 1.6% year over year.

Total operating expenses increased 3.9% year over year to $144.4 million on the back of higher compensation and benefits, facilities costs, acquisition-related expenses as well as other expenses.

Adjusted operating margin for the quarter under review was 63.4%, having expanded 120 basis points year over year from 62.2%.

Financial Update

As of Sep 30, 2018, CBOE Holdings had cash and cash equivalents of $136.8 million, down 4.7% from $143.5 million at year-end 2017. Total assets were $5.1 billion in the third quarter, declining 2.8% from $5.3 billion as of Dec 31, 2017.

Total shareholders’ equity was $3.2 billion at the end of the reported quarter, up 1.3% compared with $3.11 billion as of Dec 31, 2017.

Share Repurchase and Dividend Update

The company paid cash dividends worth $34.7 million or 31 cents per share in the third quarter. Additionally, on Oct 30, 2018, the board of directors approved a dividend of 31 cents per share for the fourth quarter of 2018 as well. This will be paid on Dec 14, 2018 to shareholders of record as of Nov 30, 2018.

In the quarter under consideration, the company bought back 0.5 million shares worth $49.1 million. As of Sep 30, 2018, the company has around $206.1 million left under its current share repurchase authorization.

2018 Guidance Reiterated

Adjusted operating expenses are expected between $420 million and $428 million.

Depreciation and amortization expenses are anticipated to range between $43 million and $48 million excluding the amortization of acquired intangible assets of $157 million.

Capital expenditures are now estimated in the $35-$40 million band.

The effective tax rate on adjusted earnings for 2018 is likely to be within 26.5-28.5%. But the company expects the same to be at the upper end of the guided range when it comes to the fourth quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.49% due to these changes.

VGM Scores

At this time, CBOE has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise CBOE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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