Morgan Stanley analyst Michael J. Cyprys downgraded Cboe Global Markets, Inc. (BATS:CBOE) to Underweight from Equal-Weight, with a price forecast of $199 (unchanged).

The analyst highlights three key concerns that could impact earnings, sentiment, and valuation, leading to their downgrade: decelerating volume growth, limited potential for margin expansion due to management's focus on stability and investments, and a preference for M&A over divestitures, with fewer share repurchases.

The analyst explains that the stock was downgraded due to its premium valuation, which seems to reflect expectations of strong topline growth. However, risks are seen in decelerating volumes and revenue, which could result in earnings disappointments and a contraction in the stock's multiple.

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Cyprys notes that an improved macroeconomic environment offers fewer catalysts to drive volume growth to new highs, especially after the U.S. election and with a rising likelihood of a soft landing.

The analyst mentions that new initiatives like the Robinhood launch may take time to have a significant impact on volumes.

Additionally, a shift toward single-name options and higher OCC margin requirements present further risks to the growth of index options.

The analyst projects tough comparisons due to a sharp slowdown in index option volume growth, which may bring revenue growth closer to management's medium-term guidance of 5-7%.

However, the stock is priced for stronger growth, in the high single to double digits, similar to the ~11% average seen by CBOE in recent years. While new initiatives could drive growth, the analyst writes that they will take time to materialize.

Price Action: CBOE shares are down 5.49% at $200.52 at the last check Wednesday.

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