On Jul 4, 2014, we issued an updated research report on
CBOE Holdings Inc.
). With weak volumes so far in second-quarter 2014, higher expenses
and intense competition, the company is witnessing the overall
volatile industry trend. Nevertheless, core fundamentals remain
This Zacks Rank #4 (Sell) stock maintained an earnings streak in
all the last 4 quarters with an average beat of 5.1%. Moreover, the
company's first-quarter 2014 earnings topped the Zacks Consensus
Estimate by 3.6% and the year-ago quarter figure by 16%.
CBOE Holdings' transaction-based revenues, which is a primary
revenue driver, is witnessing reduction in demand, seasonality
issues, significant adverse market volatility and increased capital
requirements to conform to the regulatory changes. These factors
are weighing substantially on transaction fees and volumes. Weak
volumes have been witnessed across ETP options as well.
Reduction in the prepayment of transaction fees along with lower
deferred revenues and other liabilities, also dragged the operating
cash flow in first-quarter 2014, which fell 7.3% from the
prior-year period. Additionally, volume discounts and lower rate
per contracts, which fell 13% year over year in first-quarter 2014,
have reduced returns.
Moreover, fluctuations have been witnessed in average daily
volumes that rose merely at a 4-year (2009-2013) CAGR of 1.1%,
reflecting declines in 2009, 2010 and 2012. While there was
improvement in 2013 and first-quarter 2014, weakness was witnessed
in May and June of 2014.
On the other hand though, CBOE Holdings benefits from a
diversified product portfolio and core competencies, which brighten
growth prospects. Moreover, absence of long-term debt and low
capital requirements limit balance-sheet risks, also paving the way
for effective capital deployment.
Overall, an adverse risk-reward balance in the near term has
prompted downward estimate revisions for 2014 and 2015 in the past
60 days. The Zacks Consensus Estimate for 2014 and 2015 have moved
south by 3.8% and 1.9% to $2.25 and $2.62 per share,
Moreover, the Most Accurate estimate for CBOE Holdings' 2014 and
2015 earnings currently stand at $2.19 and $2.51 a share, resulting
of -2.7% and -4.2%, respectively, which depict a slow growth
Key Picks in the Sector
Some better-ranked stocks in the financial sector include
Global Cash Access Holdings, Inc.
Hallmark Financial Services Inc.
Ladder Capital Corp.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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CBOE HOLDINGS (CBOE): Free Stock Analysis
LADDER CAP CP-A (LADR): Free Stock Analysis
GLOBAL CASH ACS (GCA): Free Stock Analysis
HALLMARK FINL (HALL): Free Stock Analysis
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