Friday, Deutsche Bank (ETR:DBKGn) updated its outlook on CBOE Holdings (NYSE:CBOE), increasing the stock's price target to $178 from $170, while keeping a Hold rating on the shares.
The firm's valuation of exchange stocks is based on assigning a price-to-earnings (P/E) ratio to the 2024 earnings per share (EPS) estimates, taking into account historical trends of relative P/E premiums or discounts.
The analyst at Deutsche Bank noted that the new price target reflects the expectation that CBOE will continue to trade at a slight P/E premium of 5% over the S&P 500, consistent with its one-year average relative P/E. The firm's method of valuation centers around the anticipated performance metrics and market positioning of the company.
CBOE's valuation is subject to various risks, according to the analyst. On the downside, potential risks include a significant decrease in recurring revenue fee growth, a reduction in the use of proprietary index products, increased competition in multi-listed options and global equities trading that could affect market share and pricing, and challenges integrating recent acquisitions.
Other concerns involve less effective returns on growth investment spending, any major systems failure, a potential shift to a low-volatility market environment, risks associated with the CEO transition, and the possibility of higher U.S. corporate tax rates.
Conversely, the firm also identified several factors that could positively impact CBOE's valuation. These include the sustained strong growth of proprietary index product usage, particularly 0DTE options, successful introductions of new proprietary products, quicker realization of revenue growth objectives from previous acquisitions, extended periods of market volatility, better-than-anticipated expense management, and favorable M&A activities that could enhance CBOE's EPS growth and share price.
InvestingPro Insights
Following Deutsche Bank's updated outlook on CBOE Holdings, a glance at the real-time data from InvestingPro provides a deeper financial perspective on the company. CBOE's P/E ratio stands at 25.4, which indicates the market's valuation of the stock relative to its earnings. Additionally, the firm's PEG ratio of 0.11 suggests that the stock may be undervalued based on near-term earnings growth expectations. Despite a slight decrease in revenue over the last twelve months, with a -4.67% change, CBOE maintains a robust gross profit margin of 50.83%, reflecting efficient cost management relative to its revenue.
InvestingPro Tips highlight some key factors for potential investors to consider. CBOE has a track record of maintaining dividend payments for 15 consecutive years and has raised its dividend for 9 consecutive years, showcasing a commitment to returning value to shareholders. However, analysts have revised their earnings downwards for the upcoming period, and predict a sales decline in the current year, which could be a signal for investors to watch closely.
For those looking to delve further into CBOE's financial health and future prospects, additional InvestingPro Tips are available at: https://www.investing.com/pro/CBOE. With more tips to explore, investors can make more informed decisions using the comprehensive analysis provided. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable insights.
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