Can CBOE Holdings (CBOE) Surprise this Earnings Season? - Analyst Blog

Leading derivative exchange operator – CBOE Holdings Inc. (CBOE) is scheduled to release third-quarter 2014 financial results before the opening bell on Oct 31.

In the last reported quarter, the company delivered a negative earnings surprise of 2.0%, although its four-quarter trailing average beat stands at 3.6%. Let us see how things are shaping up for this announcement.

Earnings Whispers?

Our proven model shows that CBOE Holdings is unlikely to beat earnings as it lacks the required combination of two key components.

Zacks ESP: The Most Accurate estimate of 54 cents per share is at par with the Zacks Consensus Estimate of CBOE Holdings. Hence, the Expected Surprise Prediction or Earnings ESP, which is the difference between the aforementioned estimates, is 0.00%.

Zacks Rank: CBOE Holdings has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions momentum. 

Major Factors at Play

CBOE Holdings witnessed a healthier third quarter after reduced volumes in second-quarter 2014, as trading volumes improved year-to-date across businesses. Total average daily volume (ADV) rose 10% year over year in the first nine months of 2014, while total futures ADV and options ADV jumped 17% and 10%, respectively, for the same period. Moreover, average rate per contract increased for most of the third quarter.

Additionally, a diversified product portfolio and core competencies augur growth, while disciplined expense guidance raise optimism. All these factors should likely translate into improved earnings and cash flow.

On the other hand, CBOE volatility index (VIX), which accounts for most of the volumes generation, is exposed to extreme fluctuation from market complacency. While VIX is based on implied volatility, it largely impacts the dynamics of the derivative markets.

The adverse effects of such underlying forces along with seasonality issues have had severe repercussions on CBOE Holdings' financials earlier this year. Hence, competitive, credit market and operating risks jeopardize the company's growth prospects, keeping us at the periphery for now.

Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter: 

JAVELIN Mortgage Investment Corp. (JMI) has Earnings ESP of +8.9% and a Zacks Rank #1 (Strong Buy).

Heartland Payment Systems Inc. (HPY) has Earnings ESP of +1.7% and a Zacks Rank #1.

Intercontinental Exchange Inc. (ICE) has Earnings ESP of +1.5% and a Zacks Rank #3.