Is Churchill Downs A Buy Ahead Of The 2021 Kentucky Derby?

On Saturday, May 1, the 147th Kentucky Derby will be held, airing live on NBC Sports, owned by Comcast Corporation CMCSA. Unlike last year’s Kentucky Derby, there will be fans in the stands and infield this year.

Could the 2021 Kentucky Derby provide a lift to Churchill Downs Inc CHDN?

Kentucky Derby: The Kentucky Derby is the longest continuously held annual sporting event in the United States. The event is one of the biggest pieces for Churchill Downs in terms of brand awareness and revenue.

For the 2021 Kentucky Derby, the company anticipates selling 40% to 50% of reserved seats and a limited amount of infield seats.

The 2021 Kentucky Derby could see around 48,000 fans in attendance, according to BizJournals. This would be significantly down from prior years including a record 170,000+ in 2015.

The return of fans could be a positive for the company as it has added restaurants and wagering areas and has high-margin items located on the grounds.

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Sports Betting: As online sports betting grows around the country with increased betting handle and new states added, new companies are emerging in the market segment. Churchill Downs owns the BetAmerica and TwinSpires brands; The BetAmerica brand is being rebranded to TwinSpires in 2021.

TwinSpires is the most profitable online horse racing company in the U.S. and offers horse racing wagers in 39 states.

TwinSpires has online sports betting in New Jersey, Pennsylvania, Indiana and Michigan. BetAmerica has operations in Colorado and Mississippi.

The company had sports betting handle of $1.98 billion in 2020, up 36% year-over-year. Revenue for the sports betting segment hit $405 million in 2020, up 39% year-over-year.

Churchill Downs is well-positioned to launch online sports betting in additional states. The company has Churchill Downs properties or third-party deals in the states of California, Florida, New York, Ohio, Kentucky and Maine.

Financials: The second quarter is the biggest one for Churchill Downs annually. Last year, the company reported revenue of $185.1 million in the second quarter compared to $477.4 million in the prior year’s comparable period.

In fiscal 2020, the company’s online wagering and gaming segments made up much larger portions of EBITDA. Online wagering had EBITDA of $109 million and gaming had EBITDA of $177 million, compared to $38 million for the Churchill Downs segment.

Churchill Downs reported revenue of $324.3 million in the first quarter of the current fiscal year, up 28% year-over-year. Derby City Gaming hit a record $32.9 million in the first quarter, up 52% year-over-year. TwinSpires horse wagering hit a first-quarter record with $93.1 million, up 39% year-over-year. TwinSpires sports betting segment reported revenue of $100.1 million.

Benzinga’s Take: The Kentucky Derby is an iconic race and watched by millions of fans across the country. The return of fans to the live event is a big story but the live horse racing segment is only a portion of the company’s business. The TwinSpires sports betting brand continues to gain entry to new states offering high margin business opportunities to Churchill Down Inc.

Price Action: Shares of Churchill Downs trade around $215.60. Shares have traded between $89.29 and $258.32 over the last 52 weeks.