Advancements Like Titanium And 24/5 EDGX Trading Will Optimize Operations And Increase Market Share

Key Takeaways

• Cboe's strategic focus on innovation and global expansion aims to drive revenue growth through increased trading volumes and international presence.
  
• A shift towards organic growth investments, supported by technological advancements, is set to enhance earnings growth and shareholder value.
  
• Regulatory challenges, market uncertainties, and strategic transitions could hinder revenue and earnings growth, impacting Cboe Global Markets' financial performance.

Catalysts

Through its subsidiaries, operates as an options exchange in the United States and internationally.

• The rising popularity and adoption of options trading, coupled with the integration of products into systems like Robinhood, could significantly enhance Cboe's revenue and earnings in 2025 and beyond.
  
• Cboe's investment in expanding its global presence, particularly in Asia Pacific, is expected to drive more international trading volumes and increase net revenue through new sales channels and educational efforts.
  
• Technological advancements, such as the launch of Cboe Titanium, and a strategic focus on innovation and data management are projected to optimize operations, potentially increasing margins and supporting earnings growth.
  
• The strategic shift towards organic growth investments instead of M&A, facilitated by a strong balance sheet, positions Cboe to capitalize on high-return opportunities, potentially boosting long-term earnings and shareholder value.
  
• The planned transition to 24/5 trading on EDGX and the anticipation of increased volumes from products like SPX and VIX options are poised to drive transaction growth, positively impacting revenue and potentially elevating Cboe's market share.

Cboe Global Markets Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cboe Global Markets's revenue will decrease by 16.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.6% today to 41.1% in 3 years time.
• Analysts expect earnings to reach $999.1 million (and earnings per share of $9.95) by about April 2028, up from $761.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.1x on those 2028 earnings, down from 29.5x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to decline by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

Cboe Global Markets Future Earnings Per Share Growth

Risks

• The potential for regulatory challenges, such as the need for SEC approvals for expansion into new trading hours, could delay planned initiatives, affecting revenue growth.
  
• Increased geopolitical tensions and uncertainties may impact market sentiment and trading volumes, which could negatively influence revenue from derivatives and equities trading.
  
• The rebranding of technology platforms without clear monetization plans could result in increased expenses without corresponding revenue growth, impacting net margins.
  
• Succession planning and CEO transition could introduce uncertainties and operational risks, potentially affecting strategic execution and financial performance.
  
• A mature phase in investment cycles reduces the expected impact from earnings on investments, potentially leading to lower earnings growth.

Valuation

• The analysts have a consensus price target of $221.333 for Cboe Global Markets based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $248.0, and the most bearish reporting a price target of just $187.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.4 billion, earnings will come to $999.1 million, and it would be trading on a PE ratio of 28.1x, assuming you use a discount rate of 7.2%.
• Given the current share price of $214.07, the analyst price target of $221.33 is 3.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.