Dying Horses Potentially Competed at Churchill Downs, Claims Expert
While no direct connection has been made public concerning the recent 12 horse deaths at Churchill Downs, a financial analyst suspects that some trainers may have raced unwell horses at the Kentucky track. In a report to clients today, Truist Securities analyst Barry Jonas revealed he conversed with Churchill Downs management on Monday, as the company lost $650 million in market value on the first trading day after announcing a suspension and relocation of its spring meet starting tomorrow.
The analyst noted that Churchill Downs, in response, had paused track-based incentives and reduced purse payouts to the top five finishers. He speculated that these prior policies might have motivated some trainers to race horses in poor health. He didn't name any specific trainers possibly involved in this issue.
In May, trainer Saffie Joseph Jr. was suspended indefinitely by Churchill following the deaths of two of his horses - Chasing Artie and Parents Pride.
Churchill Downs Addressing Equine Fatalities Seriously
Churchill Downs stock regained some of its 6.1% decline from Monday, rising 4% today on above-average trading volume.
Jonas kept a "buy" rating on the shares, with a split-adjusted price target of $150. This suggests a potential upside of 8% from today's closing price. Reflecting the views of some of his colleagues, the Truist analyst noted that Churchill gets minor financial contributions from live racing at its named track, excluding Kentucky Derby Week contests. However, he underscored that identifying the cause of the equine fatalities and managing any potential reputation risk is a top priority for management.
"Management is treating the fatalities and potential for reputational damage very seriously," said Jonas.
The recent horse deaths at Churchill Downs follow a series of similar incidents at other tracks, including some on the West Coast, in recent years. These fatalities attracted criticism from animal rights groups and sparked speculation among investors that the domestic horse racing industry's reputation is at stake, a sentiment reiterated in the aftermath of the tragedies at the iconic Kentucky track.
Churchill Downs has experienced some decline, dropping 6.25% over the past month. However, Jonas believes this downturn will be temporary. The shares have gained 31.36% year-to-date.
Churchill Downs' Long-Term Prospects Strong
Identifying the cause of the equine deaths and managing the resulting negative publicity is crucial for Churchill Downs. Jonas expects the company can double its free cash flow to $1.4 billion by 2026 or 2027, adding that the $200 million paddock project could offer an annual return on investment of 10% while paying for itself in just eight years. The space will accommodate 2,400 standard seats, 3,600 premium seats, and 3,250 standing room only spaces. Concerning horse safety, the company aims to improve those standards before the 2024 Kentucky Derby.
"We believe the new initiatives will boost confidence in [Churchill Downs’s] dedication to the well-being of the race participants," Jonas concluded.
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