CBOE Holdings Inc.
) has been gaining traction with an annual dividend yield of 3.95%
and a long-term growth rate of 12.5%, making this options and
futures leader a promising pick for investors seeking both growth
and income. This Zacks Rank #2 (Buy) declared a special dividend of
75 cents on December 11, which led to a 52-week high.
Dividend Driving Returns
CBOE has been paying regular dividends since 2008. In 2012, the
annual dividend payout was raised to $1.29 per share from 20 cents
in 2010, reflecting an increase at an annual compound growth rate
of 154% since 2010. The strong cash flows generated by the company
along with the absence of debt have resulted in a sturdy balance
sheet and abundant free cash.
While the company recently paid a special dividend, it last hiked
its dividend by 25% to 15 cents in July 2012. CBOE also deploys its
excess capital through share buybacks from time to time.
Steady Third Quarter
On November 1, CBOE reported operating earnings per share of 43
cents in the third quarter of 2012, which exceeded the Zacks
Consensus Estimate by 13.2% but fell short of year-ago earnings.
Over the last 4 quarters, CBOE has generated an average earnings
surprise of 6.6%.
Operating net income declined 15.7% year over year to $37.7
million. However, reported net income increased to $45.8 million or
52 cents per share from $41.3 million or 45 cents in the year-ago
period. Results mirrored lower operating expenses and steady
revenue per contract, partially offset by the impact of the ongoing
Subsequently, total operating revenues declined 11% year over year
to $128.3 million, while operating expenses declined 2% to $67.5
million. Nevertheless, management reaffirmed its guidance for 2012.
The company's diverse product line, market share gains and
disciplined financial management should allow it to continue
delivering strong results, especially once the low industry-wide
trading activity rebounds to its historical highs.
Earnings Estimates Moving Higher
The Zacks Consensus Estimate for 2012 is currently pegged at $1.66,
which is up 1.2% in the last 30 days as 9 of 14 estimates moved
higher. This implies year-over-year growth of 5.6%. The Zacks
Consensus Estimate for 2013 is $1.87, representing a year-over-year
increase of 12.7%.
Shares of CBOE currently trade at the 12-month forward earnings of
17.5x, a 12% premium to the peer group average of 15.6x. The
premium valuation is justified given its strong fundamentals. ROE
stands at 56.9%, compared with the peer group average of 16.2%.
The company has been continuously outperforming the NASDAQ since
last year, and has also been outperforming its 200 days moving
averages since the end of December. The stock has gained 27.0% over
the past year, compared with NASDAQ's return of 15.7%.
CBOE is the leading options exchange in the U.S., which offers
equity, index and ETF options. It also provides proprietary
products such as S&P 500 options, along with options and
futures products on the CBOE Volatility Index. With a market
capitalization of about $2.9 billion, the company competes with CME
Group Inc. (
) and IntercontinentalExchange Inc. (
), among others.
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