CBOE's Revenue Outlook Seems Healthy, Says Barclays

Barclays said the revenue outlook for CBOE Holdings, Inc CBOE "seems healthy," despite costs set to increase in the second half of the year.

The holding company's second-quarter adjusted EPS of $0.60 compared to Barclays and the Street's $0.60. Revenues beat Barclays' expectations, but expenses fell short.

"While volumes were not as robust as 1Q levels, overall rev performance was admirable in 2Q. Market share trends look good and pricing levels appear steady," analyst Kenneth Hill wrote in a note.

"The company spoke to solid traction made on its global initiatives and many partnerships. And while each on its own may not play a significant factor in generating incremental growth; in aggregate, they should be additive to the firm over time," Hill continued.

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Looking ahead to third quarter, the analyst is "factoring in QTD market share gains and a steady price outlook," despite volumes having tempered from the spike in June.

Moreover, the analyst expressed concerns over expenses overhauling revenue growth in the second quarter, and the worst part is that the trend is set to continue. For the full year, Barclays models 5 percent year-over-year revenue growth against 9 percent core expense growth.

As such, Hills cut his 2016 EPS estimate to $2.47 from $2.50 and 2017 EPS view to $2.63 from $2.71.

The brokerage's rule of thumb for most of its stocks covered in the sector is core expense growth of flat to up in the low single digits.

"[A]pplying that type of expense profile to CBOE (i.e. assuming flat core expense growth, all else equal) would generate an additional 12–13c of EPS on our $2.47 estimate, before considering revenue offsets though," Hill added.

Hill maintains his Underweight rating and $53 price target on the stock.

At the time of writing, shares of CBOE were down 0.41 percent to $68.51.

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