UPDATE: Goldman Sachs Upgrades CBOE Holdings on EPS Trajectory

In a report published Monday, Goldman Sachs analyst Alexander Blostein upgraded the rating on CBOE Holdings CBOE from Neutral to Buy, and reiterated the $47.00 price target.

In the report, Goldman Sachs noted, “We upgrade shares of CBOE to Buy from Neutral with a 12% total return potential (10% upside and a 2% dividend yield). We view CBOE as a direct beneficiary of the recent spike in market volatility, given the company's proprietary VIX products, which we expect will drive upside to revenues, margins and capital return potential in the coming months. We raise our 2013/2014 EPS estimates to $2.05/$2.40 from $1.95/$2.20 and introduce 2015 EPS estimate of $2.60. We are now 8% above consensus on average. CBOE has been successfully expanding its proprietary VIX franchise into futures for the last several years, with CFE's volumes more than doubling on a year-over-year basis to date. Recent spike in volatility further exacerbates benefits to CBOE as VIX futures volumes are typically 40% higher in a rising volatility environment. Longer-term, we believe the firm is well positioned for further growth amid launch of the new VIX products, institutional adoption and expanding its trading hours. We estimate CFE will provide about 20% of CBOE's earnings in 2013 (up from about 5% in 2011). While trends in the multi-listed options business remain mixed and we continue to see risks of further pricing compression, the business is becoming less relevant for CBOE, estimated to contribute less than 20% of earnings overtime.”

CBOE Holdings closed on Friday at $42.61.