Stifel: Churchill Downs Emerges as a Leading Gaming Growth Success


Posted on: October 2, 2023, 04:03h. 

Last updated on: October 2, 2023, 04:03h.

The stock of Churchill Downs (NASDAQ: CHDN) has experienced a recent slump, declining by 16.08% over the past 90 days. However, despite this setback, the company shows promising growth prospects in the sports betting industry.

Churchill Downs Kentucky Derby horse deaths
Horses break from the outside during the 148th Kentucky Derby on May 7, 2022. Churchill Downs stock is favored by Stifel as a top gaming growth story. (Image: Eclipse Sportswire)

This analysis comes from Stifel analyst Jeffrey Stantial, who recently initiated coverage of Churchill Downs with a “buy” rating and a price target of $148. This target suggests a potential upside of approximately 29% from the current stock price. Stantial believes that Churchill Downs is one of the most promising companies for growth in the sports betting industry.

Stantial wrote in his report, “We see growing investor appreciation for CHDN’s high-quality Kentucky Derby asset (pricing power; high-margins; proven durability), with potential flight-to-quality tailwinds amidst an uncertain outlook for the consumer.”

Despite concerns about the state of the U.S. horse racing industry and the absence of exposure to the Las Vegas Strip, Churchill Downs remains a favorite among investors on Wall Street. The company has several catalysts for growth, including a pipeline of high return on investment projects, recent acquisitions, such as Exacta and P2E, and the emerging potential of historical horse racing (HRR) machines.

Churchill Downs: More Than Just Horse Racing

While many investors associate Churchill Downs with horse racing due to its ownership of the Kentucky Derby, there is much more to the company’s investment thesis.

According to Stantial, “The company could generate approximately 44% of its 2023 earnings before interest, taxes, depreciation and amortization (EBITDA) from racing, which may appear to be a drag at a time of mounting headwinds for the domestic horse racing industry. As Stantial notes, there’s much more to the Churchill Downs investment thesis.”

“CHDN operates 11 regional casinos across 10 states, as well as racetracks and historical horse racing (HHR) facilities in Kentucky, Virginia, and soon-to-be New Hampshire,” added the analyst. “CHDN’s TwinSpires business is the leading online horse wagering platform, with content & technology also monetized via B2B partnerships.”

In 2023, regional casinos and TwinSpires are projected to contribute 45% and 11%, respectively, to Churchill Downs’ EBITDA.

Other Catalysts for Churchill Downs

Virginia could be a significant catalyst for long-term growth for Churchill Downs. The company has a 50% stake in a casino project in Richmond, and it is expanding its presence in the state with additional HHR venues. The proposed gaming venue in Richmond is expected to feature 1,800 slot machines, 100 table games, and a sportsbook.

This project is considered one of the “high ROI” ventures that support the long-term investment thesis for Churchill Downs, which is backed by multiple factors.

In conclusion, Stantial stated, “We recommend owning CHDN shares based on the following factors: a best-in-class pipeline of likely high ROI expansion projects, underappreciated organic growth drivers, valuation upside for CHDN’s high-quality Derby asset, emerging growth drivers in horse racing viewership, and a proven management team.”

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