It has been about a month since the last earnings report for Cboe Global Markets, Inc. (CBOE). Shares have added about 5.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cboe Global Markets, Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cboe Global's Q2 Earnings Beat Estimates, Rise Y/Y
Cboe Global's second-quarter 2020 adjusted earnings of $1.31 per share beat the Zacks Consensus Estimate by 4.8%. Moreover, the bottom line increased 15.9% year over year on increased trading activity, expanded operating margin, and decline in expenses.
Total revenues came in at $296.9 million, missing the Zacks Consensus Estimate by 0.03%. However, the top line increased 5% year over year, reflecting higher market data fees, primarily due to revenues from the acquisitions of Hanweck and FT Options in the first quarter of 2020 and record quarterly trading volumes in U.S. equities and multi-listed options.
Options revenues increased 7% year over year to $150.6 million driven by higher net transaction fees and market data revenues, offset by a decrease in royalty fees.
Average daily volume for Options surged 36% year over year while revenue per contract or RPC slipped 24% in the second quarter.
Revenues of U.S. Equities increased 22% year over year to $90.6 million, driven by higher revenues from net transaction fees, as well as higher revenues from non-transaction fees.
Futures revenues of $20.9 million were down 36% year over year due to a decline in net transaction fees.
European Equities revenues decreased 6% year over year to $21.1 millio, due to decrease in net transaction fees, offset by higher access and capacity fees.
Global FX revenues increased 5% to $13.7 million driven by higher access and capacity fees and net transaction fees.
Total adjusted operating expenses decreased 7% year over year to $95.8 million attributable to lower professional fees and outside services and travel and promotional expenses.
Adjusted operating income improved 12% year over year to $201.1 million. The improvement was driven by higher net revenues and lower operating expenses.
Adjusted operating margin in the quarter under review expanded 410 basis points (bps) to 67.7% owing to increased operating leverage from higher net revenues.
Adjusted EBITDA margin of 71.1% expanded 270 bps.
As of Jun 30, 2020, CBOE Global had cash and cash equivalents of $210.1 million, down 8.4% from the figure at 2019 end. Total assets were $5.4 billion in the second quarter, up 4.9% from the level at 2019 end.
At the end of the second quarter, long-term debt of the company stands at $868.6 million, up 0.1% year over year.
Total shareholders’ equity was $3.3 billion at the end of the reported quarter, down 2.1% from the value on Dec 31, 2019.
Share Repurchase and Dividend Update
The company paid out cash dividends worth $39.5 million or 36 cents per share in the second quarter.
As of Jun 30, 2020, the company had $329.9 million of availability remaining under its existing share repurchase authorizations.
Adjusted operating expenses are now expected to be in the range of $436 to $444 million, up $17 million from the previous guidance of $419 to $427 million, primarily reflecting the addition of EuroCCP and expenses related to the launch of pan-European derivatives trading and clearing.
Capital expenditures are still expected in the $65-$70 million band. Depreciation and amortization expense are estimated between $34 million and $38 million.
The effective tax rate on adjusted earnings is expected between 26.5% and 28.5%. However, it is now expected to be at the higher end of the range in the third quarter of 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -5.44% due to these changes.
Currently, Cboe Global Markets, Inc. has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cboe Global Markets, Inc. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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