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CBOE Holdings Down to Strong Sell, Echoes Industry Risks

Zacks Equity Research

On Jul 14, 2014, Zacks Investment Research downgraded CBOE Holdings Inc. (CBOE) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

CBOE Holdings has been witnessing downward estimate revisions due to sluggish growth outlook, given the lack of any significant growth catalyst and intense competition, which escalate operational and financial risks.

Notably, volumes have deteriorated due to the extreme market complacency posed by the CBOE volatility index (:VIX), which accounts for most of the volumes generation. While VIX is based on implied volatility, it largely impacts the dynamics of the derivative markets.

The adverse effects of such skewed underlying forces and seasonality issues are reflected in the ongoing industry underperformance as well. Even the company is facing muted demand as investors do not foresee any disturbing and uncertain events that require protection.

Fluctuations have been witnessed in CBOE Holdings’ average daily volumes, when these rose only 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 resurfaced in May and June of 2014.

Additionally, this U.S. derivative exchange underperformed the one-year Nasdaq index, which posed growth of 23.3% against merely 0.9% clocked by the company.

Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 declined 4.3% and 3.8% to $2.20 and $2.55 a share, respectively, in the last 60 days. No upward estimate revision was witnessed for both these years.

Moreover, the Most Accurate estimate for CBOE Holdings’ 2015 earnings currently stand at $2.49 a share, resulting in an Earnings ESP of -1.6%. This further reflects a slow growth momentum.

Other Worthy Financial Stocks

While we prefer to avoid CBOE Holdings for the time being, better-ranked financial stocks like VeriFone Systems Inc. (PAY), Total System Services Inc. (TSS) and Apollo Residential Mortgage Inc. (AMTG) are worth considering. All these stocks sporta Zacks Rank #1 (Strong Buy).

Read the Full Research Report on CBOE
Read the Full Research Report on AMTG
Read the Full Research Report on PAY
Read the Full Research Report on TSS

Zacks Investment Research