CBOE Grapples with Tepid Near-Term Volumes - Analyst Blog


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On Jul 4, 2014, we issued an updated research report on CBOE Holdings Inc. ( CBOE ). 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 strong.

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, respectively.

Moreover, the Most Accurate estimate for CBOE Holdings' 2014 and 2015 earnings currently stand at $2.19 and $2.51 a share, resulting in an Earnings ESP of -2.7% and -4.2%, respectively, which depict a slow growth momentum.

Key Picks in the Sector

Some better-ranked stocks in the financial sector include Global Cash Access Holdings, Inc. ( GCA ), Hallmark Financial Services Inc. ( HALL ) and Ladder Capital Corp. ( LADR ). All these stocks sport a Zacks Rank #1 (Strong Buy).

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CBOE HOLDINGS (CBOE): Free Stock Analysis Report

LADDER CAP CP-A (LADR): Free Stock Analysis Report

GLOBAL CASH ACS (GCA): Free Stock Analysis Report

HALLMARK FINL (HALL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: CBOE , LADR , GCA , HALL

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