Kentucky's Gaming Revolution: How Churchill Downs Is Pioneering A Stable Growth Pathway With Electronic HHR Table Games

JMP Securities analyst Jordan Bender reiterated a Market Outperform rating on the shares of Churchill Downs Inc CHDN with a price target of $155.

Exacta Systems, a pending $250 million acquisition for Churchill Downs, which is set to close by YE2023, announced the first-ever electronic historical horse racing (HHR) table games through a partnership with Interblock.

Following the entrance of top gaming suppliers carrying well-known gaming titles to the HHR market around 2018, wins per day increased at a 21% four-year CAGR in Kentucky.

The analyst believes CHDN HHR revenue will drive robust growth, increasing at an attractive 46% CAGR through 2025E.

The addition of tables will need state approval, but the millions of dollars in tax revenue will likely act as an attractive selling point to states for the introduction of tables into existing and future facilities, in the analyst’s view.

Based on the historical slot/table revenue mix of a casino, the addition of HHR tables could generate an incremental $300 million revenue, 10% above the analyst’s current 2025 estimate, excluding Exacta product sales outside the company.

However, the overhanging question to equity accretion for shares would hinge on which states would consider tables and the necessary investment, if any, that would be required to build out existing facilities, remarked the analyst.

The addition of tables alone paves a long-term runway of stable growth across its already robust business, including in Kentucky, where the company has approved capacity to add an incremental ~70% more HHR machines, compared to the analyst’s 2025 estimate of 5,400.

The analyst’s PT is based on a ~12x multiple on 2025E EBITDA and 16.0x 2023E-2025E FCF/ps.

PRice Action: CHDN shares are trading higher by 2.16% at $123.97 on the last check Monday.