Cboe rallies after Morgan Stanley double upgrade points to durable options growth

Investing.com -- Cboe Global Markets Inc (NYSE: CBOE) advanced 3.6% in Friday’s premarket session following a rare double upgrade from Morgan Stanley, which cited an improved risk-reward profile and the resolution of major long-term overhangs. Analyst Michael Cyprys raised the exchange operator’s rating to Overweight from Underweight while sharply boosting his price target to $358 from $258.

The shift reflects heightened visibility across Cboe’s core franchises, most notably secured by the extension of its licensing agreement with S&P Dow Jones Indices through 2051. The decades-long deal anchors Cboe's highly lucrative proprietary SPX index options ecosystem, effectively eliminating a primary structural uncertainty that had weighed on valuation multiples.

Morgan Stanley also addressed competitive threats, noting that market anxieties surrounding potential disruption from perpetual futures appear overdone relative to Cboe's core listed derivatives economics. Meanwhile, multi-list and index options trading volume has demonstrated greater durability than previously anticipated, laying the foundation for sustained organic revenue expansion.

Beyond its core venue operations, Cboe’s planned venture into company-specific KPI prediction markets offers meaningful upside optionality that remains unpriced by consensus expectations, according to the analyst. Supported by an $826 million net cash position, the exchange retains substantial balance sheet flexibility to fund organic innovation, pursue strategic initiatives, and maintain capital returns to shareholders.

Trading at 17.6 times projected 2027 earnings, Cboe currently holds a 4.4-turn discount to its three-year historical average P/E multiple of 22.0x. Morgan Stanley expects that valuation gap to narrow as volume growth accelerates, forecasting a 5.8% top-line compound annual growth rate through 2028 alongside a 10.2% annual expansion in earnings per share.

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