On Monday (NASDAQ:MNDY), Deutsche Bank (ETR:DBKGn) upgraded shares of CBOE Holdings (NYSE:CBOE), shifting its rating from Hold to Buy and lifting its price target to $222 from $211. The optimistic outlook for CBOE Global Markets is based on the anticipation of sustained revenue growth through at least 2025.
This projection is supported by expectations of continued market volatility following the U.S. election results, which could increase the usage of index and volatility options and futures products.
The bank's analyst predicts that revenue growth will be bolstered not only by the volatile market conditions but also through organic means such as product innovation and the growing adoption of options usage. This includes the upcoming launch of index options on the Robinhood (NASDAQ:HOOD) platform.
The analyst also believes that robust revenue growth will enable CBOE to achieve positive operating leverage in the next year, potentially exceeding management's expectations for operating margin stability as discussed in the recent third-quarter earnings call.
The upgrade is further justified by the performance of CBOE's stock, which has been the worst-performing in Deutsche Bank's coverage during the fourth quarter to date and has underperformed the S&P 500 and most other stocks year-to-date. This underperformance has brought CBOE's valuation to approximately one standard deviation below its average over the past one, three, and five years.
The analyst suggests that, combined with a potential for modest share repurchases, these factors could contribute to high single-digit EPS growth for CBOE in 2025 and 2026, an improvement from previous expectations of low to mid-single-digit growth.
In other recent news, CBOE Holdings reported strong third-quarter results with net revenue reaching a record $532 million, marking an 11% increase year-over-year. The company's adjusted earnings per share rose by 8% to $2.22, primarily driven by a 13% organic net revenue growth in the Derivatives market and a 12% rise in Cash and Spot Markets revenues.
As a result, CBOE revised its full-year organic net revenue growth guidance to 7%-9% and adjusted its expense guidance to between $798 million and $808 million.
Morgan Stanley (NYSE:MS) recently downgraded CBOE Holdings stock from Equal-weight to Underweight, citing concerns over potential slowing growth and margin pressure.
In other company developments, CBOE has shown a strategic focus on derivatives, data access, and technology, with international expansion and product innovation as key areas. The company has also completed the Canadian migration to the Cboe technology platform, allowing for resource redeployment to growth areas.
InvestingPro Insights
Adding to Deutsche Bank's optimistic outlook on CBOE Global Markets, recent data from InvestingPro provides further context to the company's financial position and market performance. Despite the stock's underperformance noted by Deutsche Bank, CBOE has demonstrated strong fundamentals and consistent shareholder returns.
InvestingPro data shows that CBOE's revenue growth has been positive, with a 3.84% increase over the last twelve months and a more robust 16.16% growth in the most recent quarter. This aligns with Deutsche Bank's expectations of sustained revenue growth through 2025. The company's profitability is also noteworthy, with a gross profit margin of 51.75% and an operating income margin of 29.36% for the last twelve months.
InvestingPro Tips highlight CBOE's commitment to shareholder returns, noting that the company has raised its dividend for 10 consecutive years and maintained dividend payments for 15 consecutive years. This consistent dividend policy could be attractive to investors seeking stable income streams. Additionally, CBOE's dividend growth rate of 32.38% over the last twelve months is particularly impressive, although the current dividend yield stands at a modest 1.24%.
However, investors should be aware that CBOE is trading at a relatively high P/E ratio of 24.71 and a Price to Book ratio of 4.9, which may indicate that the stock is priced at a premium. This valuation metric should be considered in light of Deutsche Bank's view that the stock has underperformed recently and may present an opportunity.
For investors seeking a more comprehensive analysis, InvestingPro offers additional insights, with 8 more tips available for CBOE. These tips could provide valuable context for evaluating Deutsche Bank's upgrade and the company's future prospects in light of expected market volatility and product innovations.
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