Cboe Global Markets Inc (CBOE)

Investment Committee Summary

Investment Thesis

At $304 (12 October 2026) Cboe trades on roughly 22x forward earnings for a franchise whose economics are genuinely good: the proprietary SPX and VIX complex, recurring data and access revenue, an operating margin of 35% (reported GAAP, TTM to Jun 2026) and net cash of ~$0.6B behind it. The engine does not dispute the earnings; it disputes the price. Probability-weighted value across the scenario tree is $232, the twelve-month target $236, and the blended anchor $246 — a gap of -19% that leaves the shares trading rich to the anchor set and produces SELL. The bulk of the simulated variance sits in the multiple rather than the earnings line, so the argument is about what the market will pay, not what Cboe will earn. Capital-light cash conversion supports the cash-flow read and is the strongest part of the bull case. One caveat belongs in the open: the simulation's probability of finishing above the current price is low enough that the bear weighting itself deserves scrutiny before the rating is sized. The most damaging risk is structural — volume and subscription erosion, whose scenario target sits below the 52-week low.

Narrative drafted 2026-08-16 by claude-opus-5 under supervision; reviewed by Marinus 2026-08-16.

The dashboard below is the whole argument on one page: spot ($304) against each valuation anchor, the scenario tree, technicals and the options-implied move.

Anti-Thesis (The Real Bear Case)

The structural bear does not require a market crash; it requires the recent 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 against a largely fixed cost base, so decremental margins are heavy and an operating margin of 35% (reported GAAP, TTM to Jun 2026) falls faster than revenue does. At the same time, regulatory pressure on market-data and access fees caps the recurring line that justifies the data-and-analytics framing. Earnings fall and the market re-prices the shares from a compounder multiple toward what it pays for a cyclical toll booth — a de-rate from 22x rather than a modest trim. Those two moves compound, which is why the structural target sits below the 52-week low. Neither margin discipline nor buybacks offset a shrinking volume base once the recurring-revenue narrative breaks.

Key Debate

P/E Multiple explains 84% 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.

What the Market Is Pricing In

At the current price, the market pays 21.6× consensus forward EPS, vs the house DCF terminal 14.0×, and a peer median 19.3×. The house DCF sits 14% below spot, so the market is pricing in more than the house case — roughly 1.7pp of revenue CAGR.

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

Scenario Analysis

The scenario tree spans a structural 'Structural — Volume / Subscription Decline / Competition' downside ($104) to a 'Bull — Re-Rate' bull case ($411); the probability-weighted blend (PWEV $232) is -24% versus spot.

SBC charge: scenario targets are gross per-share prices; the PWEV is reduced by one year of stock-based-compensation dilution (1.5% of shares, on SBC ≈ 1% of revenue), trimming the gross PWEV of $235 to $232 (-1.5%). SBC is charged once, as dilution — never also deducted from FCF.

Scenario rationale — 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.
• Market-Activity Recession (17%, $176). Cyclical downturn — trading volumes + recurring data/index/ratings subscriptions + pricing power weakens for 1–2 years before normalising.
• Base — Recurring Data + Volume Growth (35%, $249). Mid-cycle — normalised trading volumes + recurring data/index/ratings subscriptions + pricing power; disciplined capital allocation; steady returns.
• Growth — New Data / Index / Analytics (20%, $322). Upside — new data / index / analytics lifts earnings above mid-cycle; the multiple expands modestly.
• Bull — Re-Rate (8%, $411). Upside tail — sustained tight conditions or a structural re-rate on new data / index / analytics.

Valuation Triangulation

Four weighted anchors — an intrinsic dcf, a scenario-weighted pwev, a monte carlo median (student-t + regime switching) and a peer p/e re-rate — read them with their basis in mind. The Monte Carlo, the scenario PWEV, any DCF's exit-multiple terminal and any peer re-rate key off a market multiple, so they are not independent; only a DCF's explicit-period cash flows are multiple-free, and its terminal usually carries most of its value. The discipline is to read the spread, not to treat four numbers as four independent votes.

The house blend DECLARES five anchor weights — DCF 35%, scenario PWEV 25%, Monte Carlo 15%, sum-of-parts 15%, peer re-rate 10%. For this name sum-of-parts is not computed, so 15% of the declared weight is redistributed across the anchors that exist — which is why the weights above differ from the declared ones. The fair value is unaffected by this disclosure; the blend has always worked this way. The company-lever row in the Sensitivity section is an illustrative EBIT × multiple value, not a sum-of-parts anchor.

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 outcome distribution

10,000 paths, Student-t shocks (fat tails) with a regime-switching overlay. The median lands at $217 and 18% of paths finish above spot. The variance decomposition shows the p/e multiple is the dominant swing factor (84% of variance). Value is a multiple bet: fundamentals move the answer far less than the rating does.

DCF — explicit-period cash flows with an exit-multiple terminal

A 5-year cash-flow path discounted at a WACC of 8.5%, plus a terminal value of final-year FCF × 14.0x — a terminal multiple equal to 0.85 × the base multiple that the Monte Carlo and the scenario tree also use → $261. The terminal value is 73% of enterprise value, so this anchor moves with the multiple assumption. The heaviest anchor in this blend (41%); because its terminal is a market multiple, it is not independent of the multiple-driven anchors.

Peer benchmarking — relative value

Against its 4 peers in the same GICS sub-industry, re-rating to their median forward multiple (P/E 19.3x) implies $272. A premium is only justified by superior growth/margins; otherwise it is multiple risk. Weighted just 12% so market sentiment does not set the fair value.

Across all anchors the spread is 79% of the median — wide (genuine disagreement — the blend carries low valuation confidence).

Sensitivity

DCF/share — WACC × terminal multiple

DCF/share — revenue CAGR Δ × model op-margin Δ (Δ applied to the DCF's house margin path)

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

Company lever — value at the base multiple vs Exchanges, Ratings & Market Data multiple (base 19.0x)

Illustrative: segment EBIT × multiple, plus net cash, over basic shares — it does not enter the triangulated fair value.

Peer Quality & Weighting

Quality-weighted forward P/E: 20.8× (simple median 19.3×). Direct peers count 100%, segment 50%, broad 25%.

Historical-range cross-check: 52-week range $227–$371, centre $290 (-4% vs spot); spot sits at the 53rd percentile of the range. Low-weight mean-reversion cross-check, not a fundamental anchor.

Risk / Reward & Margin of Safety

That ratio is (triangulated FV ÷ price − 1) ÷ (1 − 'Structural — Volume / Subscription Decline / Competition' target ÷ price). 'Structural — Volume / Subscription Decline / Competition' ($104, probability 20%) is the lowest-target scenario in the tree, taken gross of SBC dilution. With a leg missing the ratio is withheld rather than computed from a magnitude. Bull case (Bull — Re-Rate): $411.

Company Overview & Business Model

Cboe Global Markets Inc — FINANCIAL SERVICES · FINANCIAL DATA & STOCK EXCHANGES. Cboe Global Markets is an American company that owns the Chicago Board Options Exchange and the stock exchange operator BATS Global Markets.

Company description as supplied by Alpha Vantage; not checked against the company's filings.

How it makes money.

† Model margin = gross margin − the opex ratio calibrated so the Monte Carlo median EPS meets the EPS target; it is not a reported operating margin.

Reported operating margin (GAAP): 32.1% for the fiscal year ended 2025-12-31; 35.2% TTM to 2026-06-30 (Alpha Vantage INCOME_STATEMENT).

Edge. 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.

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.)

For comparison, the company's reported GAAP operating margin was 32.1% for the fiscal year ended 2025-12-31; 35.2% TTM to 2026-06-30 (Alpha Vantage INCOME_STATEMENT).

Named Exposures

Demand & pricing cycle (FACT/ESTIMATE)

Capital intensity & shareholder returns (ESTIMATE)

Structural risk vs optionality (INFERENCE)

Balance Sheet & Liquidity

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

Capital Allocation

Free-Cash-Flow Quality

Accounting quality: SBC 1% of revenue; cash conversion (OCF/NI) 112% — cash-backed.

Competitive Moat

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

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 (2026Q2): management +0.44 vs analyst floor +0.00 → delta +0.44 (n=22 mgmt / 19 Q&A; 55th pctile across the S&P book, z +0.1).

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

News (last 365d, 2357 articles): avg ticker sentiment +0.14 (bullish 13% / bearish 2%)

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.

Catalyst Calendar

• 2026-10-15 (~6d) — Investor Day / recurring-revenue (Data Vantage) mix and margin targets (authored)
• 2026-10-30 (~21d) — Quarterly earnings — est. EPS $3.41 (AV EARNINGS_CALENDAR)
• 2027-01-15 (~98d) — New product / index-and-analytics launch cadence (0-DTE, credit, crypto-derivatives) (authored)

Forecast Track Record

• EPS surprise: beat 88% of the last 8 quarters; average surprise +3.5%.

Catalyst Timeline

6 catalysts in the next 90 days (of 14 tracked). Importance 1–3; confidence 0–1.

_Sources: extended.catalysts, data/catalysts/.json, data/catalysts/macro.json, AV DIVIDENDS, opex 3rd-Friday calc.

Regulatory & Legal Risk

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

Scenario Macro & Key Risks

Decision Rules (Machine-Checked)

Stance: Hold — 0 bullish / 1 bearish / 0 caution rules triggered of 6 evaluable (0 lacked data).

Machine-checked rules over disclosed inputs. The authored falsification triggers elsewhere in this report are analyst judgment and are NOT evaluated here. The stance is what the model's own rules read on this name; it does not modify the published research rating, and it is not personal financial advice.

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). (rationale withheld pending re-authoring — frozen figure or verdict)
• SPX index options average daily volume, YoY change < -0.05 (2 consecutive prints). (rationale withheld pending re-authoring — frozen figure or verdict)
• Data Vantage (data and access solutions) revenue growth (YoY) < 0.05 (2 consecutive prints). (rationale withheld pending re-authoring — frozen figure or verdict)
• Adjusted operating margin (model basis, on gross revenue) < 0.32 (2 consecutive prints). (rationale withheld pending re-authoring — frozen figure or verdict)
• Regulatory action capping proprietary market-data or index-licence fees (SEC rule adoption or binding fee suspension) = adopted (single event). 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 $304; 52-week range $227–$371; engine rating SELL; house target $236 (-22%). (source: Alpha Vantage 2026-10-09, 12 October 2026)
• INFERENCE: Triangulated FV $246 (-19% vs spot · triangulated FV); the rating tracks the Monte-Carlo + scenario-PWEV core; the DCF 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.

Conviction Score

Research Conviction measures the strength and quality of the research setup — input coverage, financial quality, valuation support, process agreement. It is NOT the probability that the recommendation succeeds; the forecast track record section is the evidence on that.

71.4/100 (confidence band 57.9–84.9), 94th percentile of 893 covered names (as of 2026-10-10). Weighted composite under config ros-1.20.0 — every component and its inputs below.

Missing inputs (macro tailwinds) are excluded and the remaining weights renormalised; the confidence band widens accordingly.

Score history: 66.3 → 65.7 → 66.2 → 66.6 → 66.9 → 66.9 → 71.8 → 71.2.

Probability-Weighted Return Profile

Horizon: 1 year — at this horizon CAGR equals total return by definition. Expected values are the probability-weighted sums over the full scenario set below.

The gross expected return is the probability-weighted scenario return (it reconciles to the gross PWEV); the diluted figure applies the SBC share-count charge and matches the published PWEV-based target.

Expected Alpha

Expected return minus the return this name is REQUIRED to deliver for its risk (1-year horizon). Constants are pre-registered (preregistered-static (amendment #2, 2026-07-29); not fitted to MCH outcomes).

A negative expected alpha does not change the rating — it says the expected return does not clear the risk-adjusted hurdle at today's price. Rating mechanics are unchanged by this section.

Probability Cross-Checks

Not authoritative. The scenario probabilities in this report are AUTHORED — a judgement about how the world might go, not a measurement. Nothing below modifies them, the target, the rating or any position size. These checks ask only whether anything outside our own model agrees with us; where it does not, that is information for the reader, not a correction we have quietly applied.

Authored set: 5 scenarios, probabilities summing to 1.0, mean target $235.08.

Factor Exposures

Cross-sectional percentiles over 928 covered names (style scores sector-demeaned; thematic = return-beta to the theme's proxy ETF). 50 = estate median.

Portfolio Interaction (Focus Book)

This name is in the top-conviction focus book. Equal-weight book vol 9.1%; diversification benefit 75.3% vs the gross-weighted average single-name vol — combining correlation, the short leg hedging the long leg, and net exposure below 1.0; not diversification alone.

Rating Bridge

Rating = SELL because:

• Probability-weighted scenario value implies -24% vs spot
• Monte Carlo median implies -29% vs spot
• DCF fair value (exit-multiple terminal) implies -14% vs spot — but this is terminal-value sensitive (exit-multiple $261 vs Gordon $302, 16% apart), so it carries less weight
• Bear case (Structural — Volume / Subscription Decline / Competition) downside is -66% vs spot
• Net: the valuation anchor itself sits 19.2% below spot, so there is no reward leg to weigh against the bear case and the reward-to-risk ratio is withheld rather than computed off a negative upside. The rating warrants a Sell.

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 $0.6B → equity $28B ÷ diluted shares $0.11B = $261/share (exit-multiple terminal).

• Gordon terminal → $302/share — a single-point perpetual-growth cross-check at g = 2.5% (one growth rate, not a range; it is not in the blend).
• Incremental ROIC on the forecast capex ≈ 126% vs WACC 8.5% → above WACC — the build is value-creative.

Peer set

Implied prices at the peer medians: same-sub-industry median fwd P/E → $272; EV/Rev → $424.

Weighted fair-value math

Model Calibration Caveats

Raised by the model's own checks on its run of 12 October 2026 (prices as of 2026-10-09). They concern how the model was calibrated, not the company; read the figures they touch with them in mind.

• The Monte Carlo gives only a 18% probability of the price finishing above today's; the house treats readings under 30% as a sign the downside assumptions may be too severe.

Assumption Register

Sensitivity-ranked drivers (widest fair-value swing first): Revenue CAGR ±3pp (64.0); Terminal × ±15% (56.0); Model op margin ±3pp (38.0); 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.)

Research Provenance

Load-Bearing Assumptions

DCF: WACC 8.5%, terminal multiple 14×, FY+5 revenue $7B. Triangulation leans 41% on DCF, 29% on PWEV, 18% on the Monte Carlo median, 12% on peer-implied value.