As the risk of a recession continues to rise, Morgan Stanley believes it’s time to buy exchange operator Cboe Global Markets . Analyst Michael Cyprys double upgraded the stock from an underweight rating to overweight, saying in a note to clients Tuesday that at this time, the bank favors defensive exchanges and brokers that benefit from rising rates and increased volatility. “In a less certain macro environment with rising probability of a recession, CBOE’s transaction-heavy business model (70% of revenues) offers potential for growth and the greatest chance for upward estimate revisions amongst the exchanges and more limited downside,” Cyprys wrote. In this volatile market, Cyprys also thinks Cboe will benefit from increased trading activity and hedging as market players attempt to navigate an uncertain market. Index options, he also said, are “cash cows” poised to benefit from uneasy trading conditions. “In addition to the cyclical uplift, CBOE has also invested in a number of initiatives to support the long-term growth potential, and while still early days, we can see more uplift to volumes as these initiatives gain traction and scale,” he wrote. Stocks have plummeted from their peaks in recent months as inflation hits record highs and the Federal Reserve began an aggressive rate hiking cycle to curb surging prices. Shares of the exchange operator have dipped 9.4% this year but could rally another 18.5% from Monday’s close based on the bank’s $140 price target. Along with the double upgrade, Morgan Stanley upped its revenue forecast and earnings per share estimates for 2022 through 2023. — CNBC’s Michael Bloom contributed reporting
Exchange operator Cboe is a buy as recession chances rise, Morgan Stanley says
