Cboe Global Markets (CBOE) is a Zacks Rank #1 (Strong Buy) that is the world’s largest options exchange and a leading provider of market infrastructure across equities, derivatives, foreign exchange, and futures.
The stock has been taken to the woodshed over the past month, with shares tumbling from $370 to around $250. Wall Street repriced the stock on competitive fears rather than fundamentals, which has made this one of the more compelling beaten-down setups in the market right now.
About the Company
The Chicago-based company operates the exchanges where investors buy and sell options on the S&P 500 (SPX), the VIX volatility index, and thousands of individual stocks and ETFs. These are products that institutions and retail investors alike use to hedge portfolios, express market views, and generate income.
Cboe also owns a robust market data business called Data Vantage that sells real-time and historical trading data to financial firms globally. In short, every time volatility spikes and options volume surges, Cboe is the toll booth.
The company is valued at $27 billion and has a Forward PE of 19. The stock has Zacks Style Scores of “D” in Value, but “A” in Growth and Momentum.
Q1 Earnings Beat
The irony is that the selloff followed one of the best quarters in company history. Cboe posted Q1 adjusted EPS of $3.70, beating estimates by 9%, on net revenue of $729M versus the $688M consensus. Operating margins expanded to 72.4% from 66.0% a year ago, net revenue grew 29%, and diluted EPS surged 54%.
Management raised full-year organic revenue growth guidance to low double-digit to mid-teens from mid-single-digit, cut operating expense guidance to $838-853M from $864-879M, and announced a strategic realignment expected to reduce the workforce by 20% while directing capital toward higher-return businesses.
Record index options volumes, a 32% jump in global trading hours activity, and 19% Data Vantage revenue growth rounded out the print.
Cboe Global Markets, Inc. Price and Consensus
Estimates Head Higher
The estimate trend tells an important story. Over the past 60 days, analysts have revised current-year EPS estimates up nine times with zero downgrades.
Full-year consensus has gone from $12.44 to $13.34 and next year’s estimate from $13.05 to $14.08. The current quarter consensus has moved from $2.81 ninety days ago to $3.23 today.
Not a single analyst has cut numbers across any time period, while the stock has been punished by fear while the fundamental earnings picture has done nothing but improve.
Competition
What sent the stock into freefall wasn’t the earnings, it was the narrative. CFTC approval of perpetual futures for Kalshi, Schwab announcing plans to launch its own binary options product, and broader fears of prediction market disruption spooked investors into treating CBOE’s moat as existentially threatened.
But management pushed back hard on that read, noting that SPX options are cleared through OCC infrastructure with 34 retail brokers, 11 floor broker groups, and 20 market-making groups participating. It’s an ecosystem that took decades to build and cannot be replicated overnight.
Cboe is also moving into event markets itself, with securities-based XSP event contracts in the pipeline and company-specific KPI contracts to follow, positioning it as a participant in the disruption rather than a victim of it.
The Technical Take
The stock started the year at $250 and recently tested that level, where it showed some support. This was after a move to $370 that erased the year’s gains in just a month.
The stock will look to bounce and test the moving averages, which will now be resistance. Let us look at those moving averages:
- 21-day: $295
- 50-day: $314
- 200-day: $275
In Summary
CBOE has erased an entire year’s gains on fear-driven selling while the underlying business is firing on all cylinders. The stock offers a rare combination of near-term bounce potential and a long-term entry point into one of the most durable franchise businesses in financial infrastructure.
— Jeremy Mullin
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Source: Zacks
