Cboe Global Markets: SPX/VIX exclusivity and KPI event contracts underpriced at 26x forward earnings

Summary

Cboe Global Markets operates the world's most defensible index options franchise, anchored by exclusive proprietary licensing on SPX and VIX products that cannot be replicated on any competing exchange. This structural exclusivity — built over 50-plus years of regulatory relationships — generates gross margins near 49% and insulates the Options segment from the fee compression that plagues multi-listed derivatives, cash equities, and FX venues where Cboe must compete on price and technology. The key mispricing thesis is that the market is valuing Cboe as a generic exchange operator with cyclical trading-volume exposure, when in fact an increasing share of its earnings mix is coming from structurally uncontested products (SPX/VIX) and recurring, subscription-like Data Vantage revenue, both of which are compounding at mid-teens-plus organic growth with expanding operating leverage. The historical trajectory supports this re-rating: revenue grew from $4.1B in FY2024 to $4.7B in FY2025 (+15%), while net income jumped from $0.8B to $1.1B and EPS grew from $7.21 to $10.42, a 45% increase that reflects margin expansion well above top-line growth. Management has now raised FY2026 organic net revenue growth guidance to mid-to-high teens (from low-double-digit/mid-teens previously) and raised Data Vantage organic growth guidance to low teens, while reaffirming disciplined opex guidance of $838-853M despite absorbing higher incentive compensation and return-to-office costs. A $40-50M annualized expense savings program layered on top of this discipline is set to expand margins further through the forecast window, even as the Cboe Australia divestiture creates a modest, temporary revenue/expense drag in 2026 that fully normalizes by 2027. Applying a 26x forward P/E to FY2027 EPS of $15.20 — a premium to the broader financial services sector but a discount to pure-play, higher-multiple data/index franchises like MSCI or S&P Global — yields a price target of approximately $395, implying meaningful upside from the current $272.86. We derive year-by-year targets off the same 26x multiple applied to the EPS forecast path ($13.10 in FY2026 rising to $19.03 by FY2029), reflecting a business transitioning toward a higher proportion of recurring, non-cyclical revenue (Data Vantage, KPI event contracts) that structurally deserves a data/analytics-like multiple rather than a legacy exchange multiple in the high teens.

Thesis

1. **Structural Exclusivity in SPX/VIX Creates a Pricing Power Moat That Peers Cannot Replicate** Cboe's Options segment is built on proprietary licensing of the SPX and VIX index option products, which have no directly tradable substitute on any competing U.S. exchange. This is not a technology or cost advantage that a well-capitalized competitor could erode over a normal investment cycle — it is a regulatory and intellectual-property moat reinforced by five decades of exchange relationships with index providers. The result is 48.9% gross margins in FY2025, materially above what Cboe earns in its contested multi-listed options, cash equities, FX, and futures segments. As volatility-linked volumes grow structurally (driven by increased use of options for hedging and income generation across both retail and institutional channels), this high-margin franchise disproportionately drives consolidated earnings growth, which is precisely what the FY2024-FY2025 EPS acceleration from $7.21 to $10.42 demonstrates. 2. **Data Vantage Is Transitioning the Business Toward a Recurring-Revenue Model the Market Isn't Fully Crediting** Data Vantage, Cboe's market-data and analytics business, is guided to grow organic revenue in the low-teens range for FY2026 (raised from low-double-digit), driven by subscription-based recurring fees rather than transaction-linked volume. This revenue stream carries structurally higher visibility and lower cyclicality than transaction fees, and its growing share of the consolidated mix should support multiple expansion over time as the market recognizes Cboe increasingly resembles a data/analytics compounder (akin to MSCI or FactSet) rather than a pure transactional exchange. The current valuation does not appear to fully price this transition. 3. **Margin Expansion Is Being Driven by Deliberate Cost Discipline, Not Just Volume Tailwinds** Management reaffirmed FY2026 adjusted opex guidance of $838-853M despite absorbing higher incentive compensation, increased return-to-office costs, and new growth-initiative investments — a sign of genuine expense discipline rather than guidance padding. Layered on top is a dedicated $40-50M annualized expense savings initiative from the Q1 2026 strategic realignment, with $20-25M expected to hit in FY2026 alone. Combined with mid-to-high-teens revenue growth, this operating leverage explains why net income is forecast to nearly double from $0.8B in FY2024 to $1.9B by FY2029 while revenue only grows from $4.1B to $7.1B over the same period — a clear signal that margins, not just volumes, are the primary earnings driver. 4. **The KPI Event Contract Launch and 23x5 Trading Extension Represent Underappreciated Optionality** The pending SEC approval of company-specific KPI event contracts (filed July 2026, decision expected late September/early October 2026) represents a new, largely uncosted revenue vertical that management has been unable to be

Risks

placeholder

📈 Price Targets

• Cboe Global Markets Inc – Target: USD 0.00 for 2026