Cboe Global Markets Inc (CBOE)

Rating: HOLD

HOLD (5-tier) · mature cash generator · conviction: medium

EPS basis for the forward P/E and all scenario multiples: consensus forward EPS (broker-adjusted, non-GAAP).

Methodology: Valuation triangulated across five independent anchors — Monte Carlo (Student-t + regime switching), an independent DCF, peer re-rating, a sum-of-parts, and a scenario-weighted PWEV. Figures reconciled to Alpha Vantage 2026-06-27. Each chart below sits with the part of the thesis it evidences.

General research for a skeptical institutional reader. Not personalised investment advice; no position sizing or trade instructions. Figures as of the analysis date; verify before acting.

Investment Committee Summary

📎 Download the full model (Excel) — DCF line items, scenarios, sensitivity, assumptions, and extended fundamentals.

Rating Bridge

Rating = HOLD because:

• Probability-weighted scenario value implies -9% vs spot
• Monte Carlo median implies -17% vs spot
• DCF fair value implies -0% vs spot
• Bear case (Structural — Volume / Subscription Decline / Competition) downside is -60% vs spot
• Net: reward/risk of 0.1× is not asymmetric enough for a Buy and not impaired enough for a Sell — hence Hold.

Investment Thesis

At $242.67 (27 June 2026) Cboe trades on roughly 19.3x forward earnings, in line with the exchange-and-data peer median of 19.3x. The market is pricing the base case: normalised options volumes plus high-single-digit recurring data and access growth, with no premium for the proprietary SPX/VIX franchise and no discount for volume cyclicality. The engine broadly agrees on earnings — implied mid-cycle EPS near $12.6 — but not on the balance of risk. The Monte Carlo median of $216 and a 38% probability of finishing above spot reflect a combined 37% weight on the volume-decline and recession paths, while the DCF at $258 leans the other way on capital-light cash conversion. The probability-weighted target of $239.40 sits about 1% below spot, hence HOLD: the distribution is wide but roughly symmetric around today's price, and 81% of modelled variance sits in the multiple rather than the earnings line, so the debate is about what the market will pay, not what Cboe will earn. The most damaging risk is structural: a 20% weight on volume and subscription erosion that prices the shares at $105, well below the 52-week low of $225.07.

The dashboard below is the whole argument on one page: spot ($259) against each valuation anchor, the scenario tree, technicals and the options-implied move.

Anti-Thesis (The Real Bear Case)

The structural bear case does not require a market crash; it requires the 2024–25 volume regime to prove cyclical. Zero-dated index options and retail-driven hedging have inflated the transaction base; if daily volumes mean-revert while rival venues contest order flow, transaction revenue shrinks with heavy decremental margins. Simultaneously, regulatory pressure on market-data and access fees caps the recurring line that justifies the data-and-analytics framing. Earnings settle near $8.70 per share and the market re-prices Cboe from near 20x to roughly 12x — a cyclical toll-booth, not a data compounder. That combination produces the $105 scenario target, below the 52-week low, and carries a 20% weight: neither margin discipline nor buybacks offset a shrinking volume base once the recurring-revenue narrative breaks.

Key Debate

P/E Multiple explains 81% of Monte Carlo outcome variance — i.e. value is set by the multiple the market will pay, a rate/sentiment regime bet as much as an earnings bet.

Earnings-Call Disconfirmation & Sentiment

Derived signals from the MCH market-data store (Alpha Vantage transcripts + news). Quantitative tone only — a disconfirmation flag, not a substitute for reading the call.

Management vs analyst tone (2026Q1): management +0.53 vs analyst floor +0.00 → delta +0.53 (n=17 mgmt / 15 Q&A; 78th pctile across the S&P book, z +0.8).

Flag: TYPICAL — management-vs-analyst tone within the normal cross-sectional range.

News (last 365d, 1000 articles): avg ticker sentiment +0.15 (bullish 18% / bearish 3%)

Scenario Analysis

The tree runs from a structural 'Structural — Volume / Subscription Decline / Competition' downside ($104) to a 'Bull — Re-Rate' bull case ($411); the probability-weighted blend (PWEV $235) is -9% versus spot.

Scenario rationale — what each probability buys (the driver path behind every target):

• Structural — Volume / Subscription Decline / Competition (20%, $104). Structural impairment — volume / subscription decline / competition: earnings AND the multiple compress together. Target sits below the 52-week low by construction. Drivers — implied_target: 105.34; probability: 0.2.
• Market-Activity Recession (17%, $176). Cyclical downturn — trading volumes + recurring data/index/ratings subscriptions + pricing power weakens for 1–2 years before normalising. Drivers — implied_target: 178.88; probability: 0.17.
• Base — Recurring Data + Volume Growth (35%, $249). Mid-cycle — normalised trading volumes + recurring data/index/ratings subscriptions + pricing power; disciplined capital allocation; steady returns. Drivers — implied_target: 248.44; probability: 0.35.
• Growth — New Data / Index / Analytics (20%, $322). Upside — new data / index / analytics lifts earnings above mid-cycle; the multiple expands modestly. Drivers — implied_target: 335.4; probability: 0.2.
• Bull — Re-Rate (8%, $411). Upside tail — sustained tight conditions or a structural re-rate on new data / index / analytics. Drivers — implied_target: 423.6; probability: 0.08.

Valuation Triangulation

Five anchors — but read them with their basis in mind. The Monte Carlo, the DCF terminal, and the peer re-rate all key off a market multiple, so they are not fully independent; only the discounted cash flows themselves are genuinely multiple-free. The discipline is to read the spread and weight the cash-based view, not to treat five numbers as five independent votes.

Peer EV/Revenue re-rate — 0% weight: it duplicates the peer-multiple information already carried by the Peer P/E anchor while ignoring margin mix; weighting both would double-count the peer view. Shown as a cross-check.

Monte Carlo — the distribution, not a point

10,000 paths, Student-t shocks (fat tails) with a regime-switching overlay. The median lands at $214 and 31% of paths finish above spot. The variance decomposition shows the p/e multiple is the dominant swing factor (81% of variance). Value is a multiple bet: fundamentals move the answer far less than the rating does.

DCF — the cash-flow anchor

Independent of the market multiple: a 5-year path, WACC 8.5%, 16x terminal FCF multiple → $257. This anchor is deliberately the heaviest (41%): it is the valuation least hostage to the current multiple regime.

Peer benchmarking — relative value

Against the peer cohort, re-rating to the peer-median forward multiple (P/E 19.27x) implies $243. A premium is only justified by superior growth/margins; otherwise it is multiple risk. Weighted just 12% so the market's mood does not drive the fair value.

Across all anchors the spread is 86% of the median — wide (genuine disagreement — the blend carries low valuation confidence).

Revenue-Segment Breakdown

The company-specific drivers behind the valuation — each segment carries its own growth, margin, multiple and capex intensity. (Tags: FACT reported · ESTIMATE from disclosures · INFERENCE judgment.)

Named Exposures

Demand & pricing cycle (FACT/ESTIMATE)

Capital intensity & shareholder returns (ESTIMATE)

Structural risk vs optionality (INFERENCE)

Industry Context — Financials — Exchanges

This name sits in the Financials — Exchanges as a exchange_data. trading volumes + recurring data/index/ratings subscriptions + pricing power Its scenarios are not guessed in isolation — they inherit a single, shared view of the cluster's driver cycle, so the names that depend on the same event are mutually consistent.

Value chain: SPGI (exchange_data) · CME (exchange_data) · MCO (exchange_data) · ICE (exchange_data) · NDAQ (exchange_data) · MSCI (exchange_data) · COIN (exchange_data) · CBOE (exchange_data) · FDS (exchange_data)

Mapping note: name-level 'Structural — Volume / Subscription Decline / Competition' (20%) + 'Market-Activity Recession' (17%) map to cluster Volume / Subscription Decline / Competition (37%); name-level 'Growth — New Data / Index / Analytics' (20%) + 'Bull — Re-Rate' (8%) map to cluster Upside — New Data / Index / Analytics (28%) — the cluster row is the SUM of the mapped scenario probabilities, not a different estimate.

On the cluster's key downside — Volume / Subscription Decline / Competition () — this name implies 37% vs the cluster house view of 37% (in line with the house). The cluster's full cross-stock reconciliation governs that the names which ride the same capex cycle assign it comparable odds.

Structure: Shared State — The fin_exchanges cycle is the shared macro driver. Driver — trading volumes + recurring data/index/ratings subscriptions + pricing power Dispersion — Members differ by cyclicality (quality compounders vs deep cyclicals).

Model Appendix

DCF — line items

FCF is bridged: NOPAT + D&A − Capex − ΔNWC (capex intensity 3% of revenue, weighted from the segments) — not a single conversion fudge.

WACC 8.5% · Σ PV(FCF) $7B + PV(terminal) $20B = EV $27B; + net cash → equity $28B ÷ diluted shares 0.11B = $257/share (exit-multiple terminal).

• Gordon (perpetuity-growth) terminal at 2.5% → $270/share — a genuinely non-multiple, cash-based cross-check; the exit-multiple and Gordon values bracket the terminal-value risk.
• Incremental ROIC on the forecast capex ≈ 112% vs WACC 8% → above WACC — the build is value-creative.

Peer set

Peer-median fwd P/E → $243; EV/Rev → $424.

Weighted fair-value math

Sensitivity

DCF/share — WACC × terminal multiple

DCF/share — revenue CAGR Δ × op-margin Δ

Tornado — DCF/share swing by driver (widest first)

Company lever — SoP/share vs Exchanges, Ratings & Market Data multiple (AI re-rating) (base 19x)

Consensus & Market Expectations

_Consensus figures: Alpha Vantage sell-side aggregates. Where the house view sits materially above or below the street, the divergence is itself a datum — see the thesis.

Balance Sheet & Liquidity

Balance-sheet data as of 2025-12-31 (Alpha Vantage).

Capital Allocation

Free-Cash-Flow Quality

Accounting quality: SBC 1.0% of revenue; cash conversion (OCF/NI) 112% — cash-backed.

Catalyst Calendar

• 2026-08-01 (~24d) — SEC market-structure / market-data-and-access fee rulemaking decision (authored)
• 2026-08-07 (~30d) — Quarterly earnings — est. EPS $3.24 (AV EARNINGS_CALENDAR)
• 2026-10-15 (~99d) — Investor Day / recurring-revenue (Data Vantage) mix and margin targets (authored)
• 2027-01-15 (~191d) — New product / index-and-analytics launch cadence (0-DTE, credit, crypto-derivatives) (authored)

Forecast Track Record

• EPS surprise: beat 87.5% of the last 8 quarters; average surprise +3.6%.

Competitive Moat

Wide moat. The moat is the proprietary SPX/VIX index-options franchise (exclusive licensing, liquidity network effects, settlement primacy) plus recurring data/access revenue - a genuine toll-road; at ~19.3x forward, in line with the exchange peer 19.3x, the market prices no franchise premium, so the moat supports HOLDING the terminal multiple at ~19x rather than compressing - but if daily volumes prove cyclical and mean-revert, the transaction-heavy earnings base falls and the multiple should compress toward the low-cyclicality peer discount.

Moat sources:

• Exclusive SPX/VIX index-options licensing and settlement franchise (the durable network-effect moat)
• Recurring market-data, index-licensing and access/connectivity subscription revenue
• Liquidity network effects concentrating options order flow
• PARTIAL: multi-listed equity-options and one-day-settled products face genuine venue competition and fee pressure

Regulatory & Legal Risk

Probabilities and sensitivities are analyst estimates, not market-implied.

Scenario Macro & Key Risks

What the Market Is Pricing In

At the current price, the market pays 17.6× forward EPS, vs the house DCF terminal 16.0×, and a peer median 19.27×. The house DCF sits 0% below spot, so the market is pricing in more than the house case — roughly 0.1pp of revenue CAGR.

Variant perception: the house view is below-consensus, and the thesis is primarily growth-driven.

Peer Quality & Weighting

Quality-weighted forward P/E: 20.0× (simple median 19.27×). Direct peers count 100%, segment 50%, broad 25%.

Historical-range cross-check: 52-week range $225–$370, centre $289 (+12% vs spot); spot sits at the 23th percentile of the range. Low-weight mean-reversion cross-check, not a fundamental anchor.

Risk / Reward & Margin of Safety

Reward/risk compares triangulated upside against the probability-weighted bear target, not the extreme tail. Bull case (Bull — Re-Rate): $411.

Assumption Register

Sensitivity-ranked drivers (widest fair-value swing first): Revenue CAGR ±3pp (64.0); Terminal × ±15% (57.0); Op margin ±3pp (42.0); WACC ±1pp (21.0); Capex intensity ±15% (4.0).

Inputs, Sources & Confidence

Every load-bearing input, labelled by type and confidence. (reported fact · company guidance · consensus estimate · market data · house estimate · inference.)

Source Log

Citation coverage: 13/14 mandated claims sourced. Filing URLs are not available via the market-data provider; company statements are cited as 10-K/10-Q via Alpha Vantage.

Load-Bearing Assumptions

DCF: WACC 8%, terminal multiple 16×, FY+5 revenue $7B. Triangulation leans 41% on DCF, 29% on PWEV.

Reasons the Thesis Could Fail (Falsifiable)

Pre-registered signals that would break the thesis — each polices a specific scenario boundary and is checked at every earnings update:

• Organic net revenue growth (YoY) < 0.04 (2 consecutive prints → Volume / Subscription Decline / Competition). The base path carries 8% top-line growth; the recession path carries 0%. Two consecutive prints below the 4% midpoint indicate the base case is failing toward the cyclical bear.
• SPX index options average daily volume, YoY change < -0.05 (2 consecutive prints → Volume / Subscription Decline / Competition). The proprietary SPX complex is the dominant transaction profit pool. Two quarters of ADV contraction of 5% or more means the volume engine behind the transaction line is breaking, not pausing.
• Data Vantage (data and access solutions) revenue growth (YoY) < 0.05 (2 consecutive prints → Volume / Subscription Decline / Competition). Recurring data and access growth is the pillar of the recurring-revenue case that supports the current multiple. Two prints at or below 5% removes the compounding leg while leaving full volume cyclicality.
• Adjusted operating margin (model basis, on gross revenue) < 0.32 (2 consecutive prints → Volume / Subscription Decline / Competition). The base path carries a 33% margin and the recession path 31%. Sustained prints below the 32% midpoint mean decremental margins are running ahead of the cyclical script and toward the structural one.
• Regulatory action capping proprietary market-data or index-licence fees (SEC rule adoption or binding fee suspension) = adopted (single event → Volume / Subscription Decline / Competition). A binding cap on market-data or licence fees converts the recurring pricing-power line into regulated revenue and validates the structural path irrespective of volumes.

Fact / Inference / Speculation

• FACT: Spot $259; 52-week range $225–$370; engine rating HOLD; base-case target $239 (-7%). (source: Alpha Vantage 2026-06-27, 8 July 2026)
• INFERENCE: Triangulated FV $241 (-7% vs spot · triangulated FV); the rating tracks the Monte-Carlo + scenario-PWEV core; the cash-flow anchor sits above the multiple-discipline core.
• SPECULATION: At current prices the embedded bet is that the market keeps paying the current multiple through the capex cycle — a regime call the engine cannot verify from fundamentals alone.

Recommendation: HOLD

Balanced: triangulated fair value $241 (-7% vs spot); the outcome hinges on P/E Multiple. The debate is P/E Multiple — fundamentally a multiple/regime call.

Disclosures & Limitations

This report is for informational and research purposes only. It is not personalised investment advice and does not consider any investor's objectives, financial situation, risk tolerance, tax position, or liquidity needs.

• No suitability assessment has been performed for any individual.
• Market data may be delayed or inaccurate; figures are as of the analysis date.
• Model outputs (fair values, targets, scenario probabilities) are estimates and may be wrong.
• Forecasts are uncertain; past performance is not indicative of future returns.
• The author or publisher may hold positions in securities mentioned.
• Users should verify information against primary sources (company filings) before acting.
• Investing involves risk of loss; there is no guarantee any target price is achieved.
• Ratings follow a defined research methodology (12-month expected-return thresholds), not individual circumstances.