Cboe Global Markets: A Fine Exchange at the Wrong Price
The business and its moat
Some franchises do not depend on fashion. Whatever smartphones and artificial intelligence look like in ten years, the probability that humanity simply stops hedging S&P 500 risk is close to zero. Cboe holds exclusive licenses on the SPX and the VIX, contractually fixed through 2032. That is a moat with a legal gatekeeper.
Exchanges also sit on the pleasant side of the AI story: wider adoption tends to lift both trading volume and demand for data. And because the products are exclusive, there is little pressure from customers to hold fees down. Cboe has grown revenue per product itself, rolling out innovations such as 0DTE options. A monopoly that keeps adding product is a rare thing.
Earning power and capital allocation
The five-year average ROE is 17.4%, achieved with a debt-to-equity ratio of just 0.28. High returns without heavy leverage deserve respect.
Annual owner earnings run to roughly $1,150 million, though the most recent quarter showed free cash flow of negative $540 million. On capital allocation, sixteen consecutive years of dividends and buybacks speak to discipline. But the record is not spotless: the 2022 acquisition of ErisX at the top of the market, followed by a $460 million impairment, is a visible scar. Good shops make bad trades; the point is to notice them.
Valuation and margin of safety
Here the story turns. The market cap stands at $32.6 billion, with the share price at $312.19. Wall Street’s consensus among fourteen analysts is HOLD, with an average target of $315.14 — essentially the current price. In my view that neutrality is less judgment than a mild intoxication with recent trading volumes.
The numbers I work with say otherwise. Owner earnings yield is 3.5%, versus 4.66% on the ten-year US Treasury. The theoretical fair purchase price, applying a 30% margin of safety to the upper bound of intrinsic value ($17.3 billion), is $12.1 billion — about $116 a share. Against that, today’s price carries a 169% premium.
A 3.5% yield below the risk-free rate is not a valuation. It is a compliment.
Word for today
An excellent business becomes a failed investment the moment the price is wrong. I do not buy a splendid exchange at a yield below what the Treasury pays.
Verdict
Pass — a durable, licensed franchise, but at $312.19 there is no margin of safety. Waiting is the position.
Correction (2026-09-03): market cap and owner-earnings yield restated at the price on the verdict date ($314.27 on 2026-08-27; the 2026-08-24 screening snapshot adjusted for price): market cap ≈ $32.6 billion (the article said $32.6 billion), owner-earnings yield ≈ 3.53% (the article said 3.5%) vs the 10-year Treasury at 4.67% — verdict unchanged.
This analysis is AI-generated, educational, and not investment advice. Figures may contain errors or be delayed. Disclaimer