Cboe Global Markets (NYSE:CBOE) CBOE is poised for growth given a compelling product portfolio, an impressive inorganic growth and solid capital position. The stock carries a favorable Growth Score of B. Growth Score analyzes a company’s growth prospects. Back-tested results show that stocks with Style Scores of A or B when combined Zacks Rank # 1 (Strong Buy) or 2 (Buy) handily beat all other stocks. The Zacks Consensus Estimate for 2020 earnings indicates 12.1% growth on 10.8% higher revenues.
The company’s return on equity of 17.6% has improved over the past three years and is higher than 12.2% for the industry, reflecting the company’s tactical efficiency in using shareholder funds.
This company has a solid history of delivering positive surprise in each of the last nine quarters, with average beat being 8.30%.
The options exchange in the United States has been increasing its revenues over the last several years driven by higher transaction fees, which in turn has been backed by trading volume growth. Given the company’s strong market position and a global reach along with strength in its proprietary products, primarily SPX options, VIX options and VIX futures, the growth momentum should continue.
Cboe Global boasts an impressive inorganic growth story. Recently, the company agreed to buy Canada’s largest “dark pool” stock trading platform MATCHNow in its effort to venture into Canada from Virtu Financial (NASDAQ:VIRT) VIRT. In fact, the noteworthy acquisition of Bats Global in 2017 expanded and diversified CBOE Global Markets’ product portfolio with the addition of U.S. and European cash equities, Global ETPs and Global FX.
Strategic acquisitions have helped the company achieve expense synergies. Cboe Global estimates to achieve $85 million of run rate synergies in 2020.
Exchange operators have always considered Canada a part of their strategic initiatives as they believe it to be one of the world’s leading equities markets. As such, in February 2016, Nasdaq NDAQ had acquired dark pool trading platform Chi-X Canada.
The Zacks Rank #2 enjoys strong liquidity position despite cash outlays to enhance operating leverage. Strong liquidity not only mitigates balance sheet risks but also paves the way for accelerated capital deployment. While it has been hiking dividend for the last nine straight years, the company had $179.7 million remaining under its existing share repurchase authorization as of Mar 31, 2020.
The stock has seen its estimates for 2020 and 2021 move up 1.1% and 0.2%, respectively in the past 30 days, reflecting investor optimism.
Shares of Cboe Global have lost 18.4% year to date against the industry’s decline of 0.7%. Nevertheless, solid fundamentals like diversified product portfolio and strong liquidity position should continue to drive the stock going forward.
Another Stockto Consider
MarketAxess Holdings MKTX operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. The company delivered a positive surprise of 3.70% in the last reported quarter. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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