Sector Wrap: Goldman upgrades 2 exchange companies

Goldman upgrades 2 exchange companies that can benefit from volatile trading after Fed move

Associated Press

NEW YORK (AP) -- A Goldman Sachs upgraded two companies that operate financial exchanges Monday amid recent volatile trading.

Citing the recent spike in market volatility, the analyst upgraded CBOE Holdings, parent of the Chicago Board Options Exchange, to "Buy" from "Neutral" and CME Group, which operates the Chicago Board of Trade and other exchanges, to "Neutral" from "Sell."

Global financial markets have been roiled by Federal Reserve Chairman Ben Bernanke's statements on Wednesday that the central bank likely will begin reducing its bond purchases later this year. The Fed has been buying $85 billion in bonds each month to keep long-term interest rates low and stimulate the economy. The Dow Jones industrial average dropped more than 200 points Wednesday and lost another 353 points Thursday, wiping out six weeks of gains.

Bond prices fell, and the yield on the benchmark 10-year Treasury note climbed to its highest level since August 2011. Stocks recovered on Wall Street Friday. They finished modestly lower Monday after a near-swoon that drove down the Dow average as much as 248 points in the first hour of trading.

The CBOE, the largest U.S. options exchange, is the only place to trade a popular option that is a type of insurance against wide swings in stock prices. The VIX or "fear" index is expected to generate increases in revenue in the coming months, Goldman analyst Alexander Blostein said in a report. He raised his estimate for CBOE Holdings' earnings for the current fiscal year to $2.05 per share from the previous estimate of $1.95 per share. For next year, the analyst upgraded his estimated earnings per share to $2.40 from $2.20.

The CME Group exchanges offer trading of interest rate futures and stock futures as well as energy, foreign exchange, metals and other assets. Growth in interest rate and stock futures has been held back by low interest rates resulting from the Fed's bond purchases. With the economy strengthening and the Fed's bond buying poised to be reduced soon and possibly ended next year, the CME exchanges could benefit.

The Goldman analyst raised his estimate for CME's earnings for the current fiscal year to $3.26 per share from $2.99 and 2014 earnings per share to $3.70 from the previous estimate of $3.39 a share.

Shares of CBOE Holdings Inc. rose $1.17 to close at $43.78. The stock has traded between $26.76 and $44 over the past 52 weeks. CME Group Inc. shares declined 73 cents to $76.06. They have traded between $49.54 and $79.45.

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