On Tuesday, Morgan Stanley upgraded CBOE Holdings' stock rating from Underweight to Overweight, adjusting the price target to $235 from the previous $193. This shift reflects a more optimistic outlook for the company amid current market conditions, with the expectation that CBOE will benefit from increased volatility. The upgrade aligns with broader analyst sentiment, as InvestingPro data shows seven analysts have recently revised their earnings expectations upward. Trading at $205.95, CBOE's stock sits comfortably above its 52-week low of $139.58, though below its high of $217.91.
Stifel analysts highlighted the exchanges business is likely to gain from heightened volatility and uncertainty, which tends to favor the SPX and VIX index options complex. This environment is seen as creating a reduced downside risk for CBOE, prompting the upgrade to Overweight. According to InvestingPro analysis, CBOE maintains strong financial health with a "GREAT" overall score, supported by robust cash flows that easily cover interest payments. The company's beta of 0.47 suggests lower volatility compared to the broader market.
The firm also noted potential growth opportunities that are not yet factored into current forecasts. These include the introduction of new products that could bolster trading volumes, such as options on VIX futures, variance, and dispersion index options. Additionally, the expansion of distribution for CBOE's proprietary index options products to a wider array of retail brokerage firms, including Robinhood (NASDAQ:HOOD) and Webull, over the past year, is expected to drive further growth. These platforms cater to a retail client base that previously did not have access to CBOE's index suite during past periods of elevated volatility. The company's strong execution is reflected in its impressive revenue growth of 8.51% over the last twelve months, with a healthy gross profit margin of 50.61%.
Morgan Stanley's revised expectations for CBOE are based on a projected increase in revenue by 2% and 4% for the years 2025 and 2026, respectively. Correspondingly, earnings are anticipated to rise by 3% and 6% for the same periods. These forecasts are underpinned by an expected growth in the average daily volume (ADV) of index options by 12.5% and 8% year over year.
The upgrade to Overweight signifies a positive turn in Morgan Stanley's assessment of CBOE's stock, suggesting a bullish stance on the company's performance in the face of market volatility and strategic product expansion.
In other recent news, Cboe Global Markets (NYSE:CBOE), Inc. reported record-breaking options trading volumes in February, with an Average Daily Trading Volume (ADV) of 18 million contracts across its U.S. options exchanges. This included a historic performance in S&P 500 Index options, reaching 3.5 million contracts. Additionally, Cboe's futures market saw significant activity, with the Cboe iBoxx iShares $ Investment Grade Corporate Bond Index futures achieving its largest block trade to date. In a strategic move, Cboe announced the upcoming introduction of Cboe FTSE Bitcoin Index futures, expanding its suite of bitcoin-related products. This initiative aims to provide traders with more tools to manage bitcoin exposure.
UBS recently adjusted its price target for Cboe to $235, citing a 12% expected year-over-year revenue growth for the first quarter, driven by increased index options volumes. The analyst firm maintained a Neutral rating on the stock. RBC Capital Markets highlighted Cboe's trading volume surge amid recent market uncertainties, with growth in multi-listed options and index options. In executive developments, Cboe elevated Tim Lipscomb to Executive Vice President and Chief Technology Officer, recognizing his contributions to advancing the company's technology platform. These developments underscore Cboe's ongoing efforts to enhance its trading and technological capabilities.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.