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Posted on: October 2, 2023, 04:03h.
Final up to date on: October 2, 2023, 09:10h.
Churchill Downs (NASDAQ: CHDN) is mired in a stoop that’s seen the shares drop 16.08% over the previous 90 days. However that tumble belies the corporate’s compelling development prospects.
That’s the take of Stifel analyst Jeffrey Stantial, who initiated protection of the inventory with a “purchase” score and a $148 value goal in a brand new report back to shoppers right now. That means upside of about 29% from right now’s shut. He famous Churchill Downs is among the finest development tales within the gaming universe.
We see rising investor appreciation for CHDN’s high-quality Kentucky Derby asset (pricing energy; high-margins; confirmed sturdiness), with potential flight-to-quality tailwinds amidst an unsure outlook for the buyer,” Stantial wrote.
Whereas Churchill Downs has no Las Vegas Strip publicity, and there are lingering considerations concerning the state of the U.S. horse racing business, the inventory is a gaming favourite on Wall Avenue. Catalysts embody an intensive pipeline of excessive return on funding tasks, advantages from the Exacta and P2E acquisitions, and the rising development story tied to historic horse racing (HHR) machines.
Churchill Downs Greater than Horse Racing
Due to its possession of the Kentucky Derby, which takes place on the firm’s namesake monitor, and its different horse racing belongings — to unknowing traders, Churchill Downs is considered by the lens of horse racing.
The corporate might generate roughly 44% of its 2023 earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) from racing, which can seem like a drag throughout mounting headwinds for the home horse racing business. As Stantial notes, there’s way more to the Churchill Downs funding thesis.
“CHDN operates 11 regional casinos throughout 10 states, in addition to racetracks and historic horse racing (HHR) amenities in Kentucky, Virginia, and soon-to-be New Hampshire,” added the analyst. “CHDN’s TwinSpires enterprise is the main on-line horse wagering platform, with content material & know-how additionally monetized through B2B partnerships.”
Regional casinos and TwinSpires are anticipated to contribute 45% and 11% of the operator’s 2023 EBITDA, respectively.
Different Catalysts for Churchill Downs
On the state stage, Virginia might catalyze long-term development for Churchill Downs. The operator has a 50% stake in a Richmond on line casino mission and a rising variety of HHR venues within the state. That proposed gaming venue is predicted to have 1,800 slot machines, 100 desk video games, and a sportsbook.
That’s considered as one of many “excessive ROI” tasks that underpin the long-term thesis for the gaming inventory, supported by a number of elements.
“We suggest proudly owning CHDN shares primarily based on the next elements: (1) a best-in-class pipeline of seemingly excessive ROI enlargement tasks, with line of sight to fast de-leveraging as development capex tapers; (2) underappreciated natural development drivers for CHDN’s HHR & just lately acquired conventional casinos; (3) valuation upside for CHDN’s one-of-a-kind high-quality Derby asset; (4) rising development drivers for horse racing viewership, and an more and more highly effective flywheel and moat for CHDN’s market-leading dwell, historic, and on-line horse racing belongings; and (5) a confirmed administration workforce with a monitor document of extremely disciplined capital allocation,” concluded Stantial.
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