CBOE: 'A Lean Mean VIX Machine'; RBC Starts At Outperform

• Shares of CBOE Holdings, Inc CBOE are down 4 percent since November 9, having slid sharply over the past 5 trading days.
• RBC Capital Markets’ Peter K. Lenardos initiated coverage of the company with an Outperform rating and a price target of $82.
• The company’s shares are undervalued and do not reflect its industry leading EPS and volume growth performance, Lenardos stated.

CBOE is poised to record robust profits and high free cash flows as its proprietary products continue to grow. The company’s clean balance sheet should support ongoing buybacks and specials, analyst Peter Lenardos mentioned.

CBOE’s stock has returned 30 percent on an annualized basis since 2011. Lenardos added that the key drivers of growth at the company are all “early innings stories.”

“As high margin proprietary products continue to grow and remain the primary driver of profits, we believe that EBITDA margins can grow into the low to mid 60% range from 58% currently,” the analyst wrote.

Lenardos expects the company’s proprietary index options and futures, namely VIX, business to remain strong on account of the lack of competition and continued growth in high-margin revenues, with expense base remaining fixed. He added that CBOE is likely to innovate around these products and drive high-margin organic growth.

“We believe the next leg of growth is likely to come from global growth (non-US hours trading) and weekly expiration contracts,” the RBC Capital Markets report noted, while adding that the company’s high growth profile, robust business mix and shareholder friendly capital returns warrant a higher valuation.