CBOE Holdings Has High Hopes for Growth

On Friday, CBOE Holdings (CBOE -0.48%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Some of the best investments in the market come from companies that are in the business of helping investors. As the operator of the Chicago Board Options Exchange, CBOE Holdings has benefited from increased institutional interest in options and other derivatives, and consolidation within the financial-exchange industry has sent its shares rising. Let's take an early look at what's been happening with CBOE Holdings over the past quarter and what we're likely to see in its quarterly report.

Stats on CBOE Holdings

Source: Yahoo! Finance.

Can CBOE Holdings keep the good times coming this quarter?
Analysts have raised their views on CBOE Holdings in recent months, boosting their earnings estimates for the first quarter by $0.02 per share and hiking full-year 2013 consensus figures by a nickel. The stock has responded even more favorably, rising 13% since late January.

Financial innovation has played a key role in the investing world, with new products aimed at institutional investors gaining attention. With new ETFs and benchmark indexes popping up all the time, the potential for exchanges to offer financial products based on those innovations has become huge, and CBOE has grabbed up its share of the opportunity. In March, the company made a deal with index-giant Russell Investments under which CBOE and NYSE Euronext (NYX.DL) became the sole exchanges for options trading on Russell's indexes. It also renewed a license in March with S&P Dow Jones Indices to give the exchange exclusive rights to popular S&P index products, including the S&P 500.

Yet CBOE isn't just focusing on institutional investors. Its launch of mini-options on high-share-price technology companies as well as major gold and stock market ETFs will open up the options market to ordinary investors, boosting overall interest and hopefully pulling retail investors back into investing.

More recent events, though, have raised concerns about CBOE. Software troubles led to a trading halt last week, affecting popular options on the S&P Volatility Index (^VIX -2.07%) and the S&P 500. Given the current sensitivity to the influence of computer-based trading on the market, the episode was ill-timed, even if it proves to have been an isolated event.

In CBOE's quarterly report, watch for management to comment on speculation that the company could be a takeover target. With NYSE Euronext in the process of merging with IntercontinentalExchange, Nasdaq OMX (NDAQ 1.41%) could be interested in bolstering its own presence in the U.S. exchange market. For now, though, CBOE seems content to keep collecting its share of options-trading revenue. 

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