Churchill Downs Analyst Bullish About Kentucky Derby, New Virginia Gaming Resort: 'Sustainable Double-Digit Growth'

Horse racetrack owner Churchill Downs Inc CHDN gets an upgrade from an analyst ahead of the opening of a new gaming resort in Northern Virginia and its ownership of the Kentucky Derby race.

The Churchill Downs Analyst: Bank of America analyst Shaun C. Kelley upgraded Churchill Downs stock from Neutral to Buy and raised the price target from $145 to $155.

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The Analyst Takeaways: Strong organic growth and a pipeline of developments that could add to the company's return on investment has Kelley "back on the horse" when it comes to Churchill Downs stock, the analyst said in a new investor note.

"We think CHDN's double-digit growth sets them apart from gaming peers and other consumer stocks," Kelley said.

An item that sets Churchill Downs apart is its growth pipeline, led by The Rose in Northern Virginia, Kelley said. The new gaming resort set to open in September is another catalyst.

Kelley said Churchill Downs can have "sustainable double-digit growth" driven by a recent casino opening, the upcoming Rose opening, a new property in Kentucky in 2025 and additional opportunities for the Kentucky Derby.

The Rose open comes after "a strong opening of the Terre Haute casino" in the second quarter, Kelley added. Churchill Downs also has a new historical racing machine property in Kentucky, coming in 2025.

"We are excited about the potential for the Rose in particular given the densities and low competition in Northern VA and beyond 2025 can see growth carry on from additional HRM's in Virginia and NH."

The analyst said regional gaming trends have performed better than expected and EBITDA margins have been boosted for the company.

While Churchill Downs has a higher multiple of 11.4x 2025 estimated EBITDA, Kelley says the company's pipeline could add double-digit EBITDA growth with competitors struggling to post organic growth.

"Given the earlier phase of HRM buildouts, the monopoly that is the Derby, and lower than sector balance sheet leverage, consumer cyclicality could prove limited."

CHDN Price Action: Churchill Downs stock is up 2.04% to $136.38 on Monday versus a 52-week trading range of $106.45 to $146.64. Churchill Downs stock is close to 10% over the last year and up more than 1% year-to-date in 2024.

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