Churchill Downs Price Target Lifted Ahead of Q2 Earnings

Posted on: July 22, 2024, 04:00h. 

Last updated on: July 22, 2024, 09:47h.

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

Churchill Downs (NASDAQ: CHDN) drew an upward price target revision ahead of its second-quarter earnings report scheduled for July 24 after the close of US markets.

Churchill Downs Kentucky Derby horse deaths
Horses break from the outside during the 148th Kentucky Derby on May 7, 2022. An analyst raised his price target on Churchill Downs, citing strength in historical racing machines, among other factors. (Image: Eclipse Sportswire)

Stifel analyst Jeffrey Stantial cited state-level data indicating the gaming company’s live and historical (L&H) horseracing revenue for the June quarter was likely bullish. That coupled with strong showings at some historical racing machine (HRM) properties could stoke modest upside to earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates.

Same-store KY/VA HRM revenue growth was fairly stable Q/Q during Q2, and continues to materially outpace anemic regional gaming trends reflecting growth drivers discussed throughout our recent research (skill game bans; VA slot floor improvements; residual ramp for new openings),” wrote the analyst.

Stantial reiterated a “buy” rating on Churchill Downs while boosting his price target on the stock to $160 from $153. That implies upside of 14.1% from the July 19 close. Shares of the gaming stock are higher by 3.84% year to date.

Q2 Vital for Churchill Downs, TwinSpires Has Momentum

Churchill’s second-quarter earnings update is usually the most watched of its four quarterly reports because that’s the period including the Kentucky Derby. This year, the “Run for the Roses” bested the handle records set last year — a feat that was true for all of Derby Week.

Records were also set by the operator’s TwinSpires unit. Handle for the Derby Day program at TwinSpires jumped to a new record of $92.1 million, easily surpassing the 2023 tally of $75.5 million. For the Derby itself, TwinSpires handled $60.9 million in wagers, also a new record and well ahead of the previous all-time high of $48.9 million set last year.

Stantial modestly reduced second-quarter adjusted EBITDA estimates for TwinSpires, which was the subject of takeover speculation several years ago, ?but noted there is some momentum for Churchill’s online wagering arm.

“Data also indicates sequential improvement in volume of race days – a key headwind to TwinSpires handle growth in recent quarters,” he added.

Churchill Downs HRM Venues Adding to Growth Story

Churchill Downs’ HRM venues in Kentucky and Virginia are widely viewed as growth drivers for the operator and could derive some long-term benefit from recent favorable legal rulings.

More specifically, we note the KY skill game ban was recently upheld by a local county circuit judge (we expect skill game manufacturers to continue contesting the ruling, though likely unsuccessful), though new types of skill games have already begun to emerge potentially temporarily re-capturing some play that gravitated to CHDN’s HRM properties post-ban,” noted Stantial.

The gaming company currently has 2,750 historical horse racing machines in Virginia and would like to boost that count to 5,000. HRM properties coupled with one of the industry’s most robust project pipelines are among the reasons why Churchill is Stifel’s preferred idea among regional gaming equities.