Why Is Cboe Global (CBOE) Down 7.5% Since its Last Earnings Report?

It has been about a month since the last earnings report for Cboe Global Markets, Inc. CBOE. Shares have lost about 7.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CBOE due for a breakout? 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 Beats on Q1 Earnings, Revises Guidance

Cboe Global Markets, Inc.’s first-quarter 2018 adjusted earnings of $1.38 per share beat the Zacks Consensus Estimate of $1.27 by 8.7%. Moreover, the bottom line improved nearly 47% year over year.

The quarter benefited from improved solid revenues, prudent expense management as well as the positive impact of tax reform. The company reported expanded trading volume in each business segment in the quarter under review, marking new highs in the quarterly volumes of VIX Futures, VIX Options and SPX Options.

Operational Details

Total revenues came in at $328.5 million, surpassing the Zacks Consensus Estimate by 4.5%. The top line soared 70% year over year owing to contribution from Bats buyouts as well as increased net transaction fees.

Average daily volume for Options was up 33% year over year while the average revenue per contract or RPC increased 7% in the reported quarter. This was primarily driven by a shift in the mix of trading volume toward higher RPC index options.

Total RPC for U.S. Futures decreased 4.8% year over year to $1.727. Its ADV also expanded 29% year over year.

Total operating expenses declined 3.9% year over year to $160.8 million on the back of lower acquisition related expenses, partially offset by increased amortization of acquired intangibles.

Adjusted operating margin for the reported quarter was 66.5%, having improved 660 basis points year over year from 59.5%%.

Financial Update

As of Mar 31, 2018, CBOE Holdings had cash and cash equivalents of $166.3 million, up 15.9% from $143.5 million at year-end 2017. Total assets were $5328.2 million in the first quarter, inching up by 1.2% from $5265.7 million as of Dec 31, 2017.

Total shareholders’ equity was $3,175.2 million at the end of the reported quarter, up 2.1% compared with $3,110.6 million as of Dec 31, 2017.

Dividend Update

The company paid cash dividends worth $30.6 million or 27 cents per share in the first quarter.

Also, the company bought back 0.4 million shares for $43.6 million. As of Mar 31, 2018, the company had $203 million remaining under its existing share repurchase authorization.

2018 Outlook

Adjusted operating expenses are expected between $420 million and $428 million, a 1-3% increase from 2017.

Depreciation and amortization expenses are anticipated in the range of $53-$58 million excluding the amortization of acquired intangible assets of $157 million.

Run-rate expense synergy target is projected at $85 million, up from the earlier guided $65 million.

Capital expenditures are now estimated in the $45-$50 million band, down from the previous prediction of $50-$55 million.

The effective tax rate on adjusted earnings for 2018 is likely to be within 26.5-28.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.

Cboe Global Markets, Inc. Price and Consensus

Cboe Global Markets, Inc. Price and Consensus | Cboe Global Markets, Inc. Quote

VGM Scores

At this time, CBOE has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, CBOE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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