Posted on: June 8, 2024, 05:09h.
Last updated on: June 8, 2024, 05:09h.
Churchill Downs (NASDAQ: CHDN) stock is off a third of a percent year-to-date, which is actually good for one of the better performances among gaming equities. At least one analyst believes the shares could shake that lethargy.
![Churchill Downs Derby City Gaming Louisville HHR](https://www.casino.org/news/wp-content/uploads/2024/05/71806658007-gaming-01-sam-858x572.jpg)
In a recent note to clients, Stifel analyst Jeffrey Stantial proclaimed Churchill Downs to be a catalyst-rich story with deleveraging among those sparks. He reiterated a “buy” rating on the shares with a $153 price target, which implies upside of 13.7% from the June 7 close. The operator is coming off a record-setting handle for the Kentucky Derby and Derby Week last month, which should provide ballast to second-quarter results.
Management highlighted the simultaneously announced extended broadcast rights agreement with NBC Sports, while growth in viewership (+13% Y/Y) and development projects help support CHDN’s targeted sponsorship strategy,” observed Stantial. Guest feedback on the debuted ~$200 million Paddock project has been overwhelming positive, while management reiterated it has an opportunity to optimize and yield up the space in 2025+.”
Churchill’s TwinSpires unit was a Derby beneficiary as the online betting entity garnered a handle of $92.1 on “the run for the roses,” easily besting the prior record of $75.5 million set last year.
Kentucky, Virginia Central to Churchill Downs Stock Thesis
While data indicate that Churchill’s newest historical horse racing (HHR) facility — the $90 million Derby City Gaming venue in the operator’s home city of Louisville – is off to a slow start, Kentucky and Virginia remain pivotal to the stock’s broader thesis.
The operator’s historical racing machine (HRM) venues in Virginia are growing. Those properties operate under the Rosies brand and all except one recently notched double-digit gross gaming revenue (GGR) on a year-over-year basis. Virginia’s ban on skill games is a positive for Churchill in the state.
“We note the Virginia governor recently vetoed a bill re-legalizing skill games, though expressing openness to negotiation with legislators – with higher tax rate and geographic exclusion zones around casino/HHR facilities likely the key sticking points,” added Stantial. “The potential casino project in Petersburg also remains a key focus for investors, with notable public opposition from unions and competitors.”
Even with the slow start by Derby City, Churchill management signaled to Stantial that overall same-store sales trends at its Kentucky gaming venues remain sturdy.
Exacta Deal Paying Dividends
Churchill shares could also benefit from the operator’s savvy deal-making, including the December 2022 $250 million deal for Exacta Systems, a Florida-based provider of HHR systems and gaming machines.
Exacta bolstered Churchill’s HHR exposure in its home state and Virginia as well as New Hampshire, which has been accretive to growth in its own right.
“Management reiterated plans to convert ~10% of KY floors to Exacta, while our back-of-envelope analysis suggests $15M+ of incremental annualized cost savings in VA alone reflecting healthy same-store growth and the addition of ‘The Rose’ (but before deployment of remaining HRM capacity),” concluded Stantial. “While still early, management sees opportunity to participate in international HHR growth as well as through Exacta.”