Cboe Global Markets, Inc.CBOE witnessed its senior unsecured debt ratings get an upgrade from the credit rating giant Moody's Investors Service. The senior unsecured debt ratings were upgraded from Baa1 to A3 and its outlook remained stable. Moreover, the rating agency made a decision to withdraw Cboe Global's instrument-level outlooks for its own business reasons.
The ratings upgrade represents Cboe Global's solid financial portfolio and its cash flow generating capability along with the success achieved owing to the ongoing integration of Bats Global Markets, Inc.
The rating agency expects Cboe Global's debt leverage to be in line with its existing level and when it comes to following growth opportunities, the company will focus on maintaining a well-balanced strategy pertaining to creditor and shareholder interests. This expectation is represented by the aforementioned stable outlook.
Per the rating giant, a diverse product portfolio has been boosting Cboe Global's robust financial profile.
From the time of Bats' acquisition in February 2017, Cboe Global has delevered to a modest 1.6x Moody's debt/trailing-12 months' EBITDA in September 2018. The leverage improved from approximately 2.7x based on the debt level at the time of the buyout and both companies' collective 2016 results. This improvement is attributable to debt pay-downs, organic growth and cost reduction owing to the combined entity's business.
Cboe Global's ratings could witness an upgrade if the company remains committed toward achieving and maintaining its debt leverage of around 1.5x and an increased share of net revenues from recurring sources, not reliant on transaction volume.
On the flip side, Cboe Global might experience a downgrade in its ratings if its debt leverage goes above 2x, either through an integration consummated with a preponderance of debt funding or a persistent decline in operating cash flows. Additionally, changes in regulatory or market structure and operational failures, which could cause substantially adverse consequences for key business activities, could also result in a ratings downgrade.
Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as maintaining credit worthiness of a stock. Whereas rating downgrades not only hamper business but also increase the cost of future debt issuances. We believe that such ratings will help Cboe Global retain investors' trust and write more businesses going forward.
Zacks Rank and Share Price Movement
Currently, Cboe Global holds a Zacks Rank #2 (Buy). Shares of the company have lost 22.9% year to date against the industry 's rally of 13.6%. However, we expect higher revenues, inorganic growth and a solid capital position to turn the stock around in the near term.
Other Stocks to Consider
Investors interested in other top-ranked stocks from the same space can also consider CME Group Inc. CME , MarketAxess Holdings Inc. MKTX and Intercontinental Exchange, Inc. ICE , each holding a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
CME Group operates contract markets for the trading of futures and options on futures contracts worldwide. The company delivered positive surprises in all the last four reported quarters, the average being 1.41%.
MarketAxess Holdings 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 pulled off positive surprises in three of the trailing four reported quarters, the average positive surprise being 3.64%.
Intercontinental Exchange operates regulated exchanges, clearing houses and listings venues for financial and commodity markets in the United States, the United Kingdom, Continental Europe, Asia, Israel and Canada. The company came up with positive surprises in all the preceding four reported quarters, the average earnings surprise being 2.76%.
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