Churchill Downs' Stock Set to Rise with Expansion of Venues
Churchill Downs' (NASDAQ: CHDN) stock ended marginally up on Thursday after the gaming company posted impressive fourth-quarter results the day before. Now, attention shifts to new ventures and their potential impact on the share price.
For instance, the operator won approval for phase one of The Rose Gaming Resort in Dumfries, Virginia, and is projected to open Owensboro Racing & Gaming in Owensboro, Kentucky, in early 2025. This venue will be an extension of Ellis Park Racing and Gaming, supporting horse race purses at the said track.
In spite of reservations about the state of domestic horseracing, live and historical racing (L&H) remains a significant contributor to Churchill Downs' revenue. According to Stifel analyst Jeffrey Stantial, most property revenues surpassed expectations. He believes that mild weather in December and the shutdown of skill-based games in mid-November, along with the ongoing growth at some Kentucky properties, played a role in this.
Stantial maintains a "buy" rating for Churchill Downs stock, with a $150 price target.
Wall Street's Favorite Gaming Stock
Analysts believe Churchill Downs is potent, even though it lacks a presence in Las Vegas and isn't a major contender in online sports betting.
A strong slate of upcoming high return on investment projects, the positive impact of the Exacta and P2E acquisitions, and the promising growth prospects tied to historical horse racing (HHR) machines are among the factors driving their optimism. Eight out of the ten analysts following the stock recommend a "strong buy" or "buy," implying a potential 19.31% increase from the current price based on the current consensus price target of $143.
The progress of the TwinSpires unit and thoughtful acquisitions are also key factors in the company's appeal on Wall Street.
"TwinSpires fared well too, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $34.9M, surpassing our model by 13%/12% and consensus by 15%/14%. Revenues grew by 2%, meeting our model but not consensus, while adjusted EBITDA margins of 33.5% exceeded our/Street's 30.2%/30.1% expectations," highlighted Stantial in a client note.
Future Catalysts
Although the first quarter isn't concluded, investors anticipate the company's second-quarter earnings will give the stock a boost. The Kentucky Derby, scheduled for May, brings additional significance this year. Churchill Downs' new hotel at the Terre Haute Casino Resort in Indiana is slated to open in May, along with enhancements such as extra seating, a revamped paddock, and high-end amenities for VIPs at the main track.
The Kentucky Derby's traditionally significant status for Churchill Downs notwithstanding, the first Triple Crown race with new amenities will add intrigue this year.
"For CHDN's KY properties, Q4 results appear remarkably in line with our model, which has been adjusted for mis-modeled easy weather comps. Turfway, Newport, Ellis, and Derby City Gaming continue to grow robustly post-opening/acquisition/capital expenditure, and Derby City Downtown is expected to see a surge in Q2 with the onset of summer tourism in Louisville and the Derby fueling high visitor turnout," said Stantial in conclusion.
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