On Monday, JPMorgan adjusted its stance on CBOE Holdings, upgrading the stock from Underweight to Neutral and raising the price target to $195 from $168. The revision follows the release of CBOE's second-quarter financial results for 2024.
The firm's decision to change the rating was influenced by recent performance indicators from CBOE. The analyst noted a previous concern about decelerating trends in VIX and SPX open interest, as well as the maturation of zero-day-to-expiration (0DTE) trading.
However, an anticipated period of heightened volatility is expected to drive increased activity in CBOE's flagship products, including VIX and SPX options, which has led to a more positive outlook.
Despite the upgrade, the analyst expressed continued caution regarding the maturation of 0DTE trading and skepticism about the potential success of index options on trading platforms like Robinhood (NASDAQ:HOOD).
Nevertheless, the solid earnings reported for the second quarter of 2024 and the leadership of CBOE's new CEO, Fred Tomczky, who took the helm in late 2023, have contributed to the upgraded rating and price target.
JPMorgan's updated projections are based on the expectation that higher market volatility will stimulate greater activity levels across VIX, SPX, and options trading in general.
This anticipated increase in trading activity, coupled with modestly higher valuations as investors adopt a more defensive stance, has informed the new price target for CBOE Holdings.
In other recent news, CBOE Global Markets reported a significant 10% year-over-year increase in net revenue, reaching a record $514 million. This robust performance was primarily driven by higher volumes in cash and spot markets, a strong showing in derivatives, and growth in the Data and Access Solutions business. Additionally, the company experienced a 21% growth in adjusted diluted earnings per share (EPS), which rose to $2.15.
In recent developments, Citi has upgraded CBOE's price target to $200, maintaining a neutral rating on the stock. This adjustment follows CBOE's reported over 3% increase after the announcement of their second-quarter earnings, supported by a raised organic net revenue guidance.
According to Citi's analysis, CBOE's ongoing technology investments and strategic focus on expanding in international markets, particularly Asia, may offset slower growth in index options.
CBOE's strategic initiatives include leveraging its global network to facilitate access to US markets and expanding its product offerings. Despite an $81 million charge related to the wind-down of the CBOE Digital spot market, the company remains optimistic about the rest of the year and its ability to capitalize on market opportunities. The company has reaffirmed its full-year 2024 adjusted expense guidance of $795 million to $805 million.
InvestingPro Insights
Following the recent upgrade by JPMorgan, CBOE Holdings has shown several indicators that may interest investors. According to InvestingPro data, CBOE's P/E ratio stands at 24.61, reflecting a premium valuation relative to its earnings. This is coupled with a PEG ratio of 1.41, which suggests that the stock's price may be high compared to its near-term earnings growth. Additionally, with a Price/Book ratio of 5.04, CBOE is trading at a higher multiple of its book value. These metrics may be of particular interest to investors considering the recent analyst upgrade and the company's performance.
InvestingPro Tips reveal that CBOE has raised its dividend for 9 consecutive years and maintained dividend payments for 15 consecutive years, indicating a strong commitment to returning value to shareholders. Furthermore, analysts have revised their earnings upwards for the upcoming period, which may signal confidence in the company's future performance. It's worth noting that CBOE is trading near its 52-week high, underscoring the recent positive sentiment surrounding the stock.
For investors seeking more in-depth analysis, additional InvestingPro Tips for CBOE are available, providing further insights into the company's financial health and market position. These tips can be accessed for a comprehensive investment strategy.
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