Churchill Downs Stock Primed for Upside as New Venues Come Online

Posted on: February 22, 2024, 06:11h. 

Last updated on: February 23, 2024, 11:23h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Churchill Downs (NASDAQ: CHDN) closed slightly higher Thursday after the gaming company reported solid fourth-quarter results late Wednesday. But with those numbers in the past, analysts are turning to the operator’s new venues and the potential impact those properties could have on the stock price.

Churchill Downs Ellis Park historical horse racing HHR
Racehorses cross the finish line at Ellis Park. An analyst remains bullish on Churchill Downs stock. (Image: Ellis Park)

Such venues include The Rose Gaming Resort in Dumfries, Va., for which the operator recently won approval to proceed with phase one of the project. Churchill Downs is also slated to open Owensboro Racing & Gaming in Owensboro, Ky. in early 2025. That venue will operate as an annex of Ellis Park Racing and Gaming, and serve to fund purses for horse races at the track.

Although concerns about the state of the domestic horseracing business linger, live and historical racing (L&H) remains a source of strength for Churchill Downs.

Management cited broad-based strength across L&H, with nearly all property revenues beating our model,” wrote Stifel analyst Jeffrey Stantial in a note to clients. “Based on our anecdotal checks, we sense this partly reflects mis-modeled easy weather comps in December, as well as more impactfully tailwinds from skill-based games being shut down in mid-November & continued ramp at key Kentucky properties.”

Stantial rates Churchill Downs stock a “buy,” with a $150 price target.

Churchill Downs Stock A Favorite

Analysts are bullish on Churchill Downs, and that bullishness abounds even though the operator has no Las Vegas exposure, nor is it a major player in the realm of online sports betting.

Catalysts include an extensive pipeline of high return on investment projects, benefits from the Exacta and P2E acquisitions, and the emerging growth story tied to historical horse racing (HHR) machines. Eight of the 10 analysts covering the stock rate it a “strong buy” or “buy,” and the consensus price target of $143 implies 19.31% upside from Thursday’s close.

Growth in the operator’s TwinSpires unit and smart acquisitions are among the reasons why Churchill Downs is among Wall Street’s favorite gaming names.

“The TwinSpires segment also beat nicely with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $34.9M coming in +13%/+12% to our model/Consensus. Revenues were +2% to our model, and inline with Consensus. Adj. EBITDA margins of 33.5% were well ahead of our/Street’s 30.2%/30.1%, likely reflecting mis-modeled mix impact from Exacta,” added Stantial.

Other Potential Sparks

While the first quarter isn’t over, Churchill Downs’ second-quarter earnings could be a spark for the shares. That’s because the Kentucky Derby is slated for May, and the hotel at the operator’s Terre Haute Casino Resort in Indiana is expected to open later that month.

While the Derby is consistently viewed as a marquee event for Churchill Downs, this year will be the first edition of the Triple Crown race that tests new amenities at the operator’s eponymous track. Those include additional seating, a fresh paddock, and offerings for VIPs.

“For CHDN’s KY properties, Q4 results appear fairly inline with our model normalized for mis-modeled easy weather comps. Turfway, Newport, Ellis, & Derby City Gaming continue to ramp nicely post-opening/acquisition/growth capex, while the recently opened Derby City Downtown should see step function growth in Q2 as summer tourism in Louisville begins, while the Derby also drives high visitation,” concluded Stantial.