As the world grapples with increasing geopolitical uncertainty, Piper Sandler highlighted a company Monday that it said is poised to benefit from the chaos.
CBOE Global Markets Inc. (NYSE:CBOE), a leading provider of market indices and options, has emerged as a robust defensive play in these turbulent times, according to Piper Sandler.
Analyst Patrick Moley reiterated an Overweight rating for the company with a $174 price target in a Sunday note.
The recent economic and geopolitical fallout stemming from the Hamas attacks on Israel over the weekend has sent shockwaves through financial markets. This turbulence is expected to boost market volatility, and CBOE Global Markets is well-positioned to capitalize on it, according to Piper Sandler.
“Over 70% of the company’s revenue is generated from transaction and clearing fees on the CBOE options market. Additionally, CBOE’s proprietary SPX and VIX derivative products, accounting for nearly 40% of its total revenues, are likely to see increased demand as geopolitical and macroeconomic uncertainty takes center stage,” said the analyst.
Rising Demand For CBOE Global’s Derivatives Products
“In recent quarters, the demand for CBOE’s options products, including VIX and SPX options, has been robust.” “Notably, October has witnessed a record average daily volume (ADV) of 3.529 million contracts,” said Moley.
The company experienced its strongest-ever trading day for SPX option volumes Oct. 6, and the last six trading days have seen three of the top six strongest volume days for SPX options.
Piper Sandler anticipates potential upside for CBOE in the fourth quarter, citing seasonal volume tailwinds and the growing demand for macro hedging and speculation through index derivative products.
“Adding to the bullish sentiment expressed by Piper Sandler on CBOE Global Markets is the unexpected resignation of CEO Ed Tilly on Sept.19. This development has sparked investor speculation about a potential sale of the company and could create a “higher floor” for its shares in the coming months,” said Moley.
Year-to-date, shares of CBOE Global Markets have surged by 30%, reaching all-time highs Monday. The stock is on a six-day winning streak, the longest since June 2022.
While the company marginally beat Street expectations with earnings per share of $1.78 in the second-quarter, it slightly missed revenue forecasts at $467 million, as opposed to the expected $469 million. The upcoming third-quarter earnings report is scheduled for Nov. 3.
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