Shares of the Chicago Board of Trade fell Thursday to their lowest level since the exchange’s initial public offering in October after an analyst at Citigroup Inc. recommended selling the stock because it was overvalued.
The exchange also said it will cut roughly 40 jobs, or about 5 percent of its workforce, as part of a strategic realignment that will cut costs by as much as $11 million in 2006.
Shares of the Board of Trade dropped nearly 7 percent, to $88.40, before rallying to close at $90.81, off $4.09, or 4.3 percent, on the New York Stock Exchange.
To justify its stock price, the Board of Trade would have to earn more than $2.75 a share next year, Citigroup analyst Donald Fandetti wrote in a note to investors, an “unlikely” scenario given his current projection of $2.50 a share.
Citigroup is the fourth of five underwriters of the CBOT’s Oct. 18 initial public offering to rate the company’s shares a “sell” or “underperform” after they soared in the initial days of trading. The fifth, JPMorgan Chase & Co., has a “neutral” rating on the stock. Shares were initially sold at $54 apiece.
Analyst Michael Hecht at Banc of America Securities LLC, which wasn’t an underwriter, was the first to begin coverage of the stock, issuing a “sell” rating on Nov. 22 that helped send shares down 6 percent.
“The market is implying unrealistically high contract-volume growth,” Fandetti said. Given expectations that yields on U.S. Treasuries will fluctuate in a narrow range next year, investors should anticipate “less robust” trading in futures tied to government securities, he said.
Transactions at the Board of Trade rose 1.6 percent in November, to 2.88 million contracts a day, compared with a 27 percent surge at the bigger Chicago Mercantile Exchange.
The workforce reduction, which is expected to be completed before Dec. 31, will affect approximately 40 people, the Board of Trade said. A charge of between $1.9 million and $2.1 million for severance and related costs is expected to be incurred in the current quarter.
“Our recent investments in technology and successful technology partnering arrangements have significantly enhanced the services we provide to our global market participants and have created a more efficient operating model,” said Bernard Dan, president and chief executive of the Board of Trade’s parent company, CBOT Holdings Inc.
Dan said that as the exchange winds down its work related to enhancements, it needs to realign by “reorganizing responsibilities, rationalizing consulting resources, streamlining processes and reducing our workforce in these areas.”
An exchange spokeswoman declined to comment further on the exchange’s strategic plans other than to say the changes will occur in the technology and operations groups.
