• Sat. Jul 24th, 2021

Churchill Downs Inventory Deserves Premium A number of, Says Analyst, Cites Important Upside


Jun 19, 2021

Posted on: June 18, 2021, 10:22h. 
Final up to date on: June 18, 2021, 02:15h.

Todd Shriber Learn Extra

Racetrack operator Churchill Downs (NASDAQ:CHDN) has avenues for fairness upside and warrants a premium valuation relative to friends.

Medina Spirit, ridden by jockey John Velazquez, pulls forward to win the Kentucky Derby this Might.  An analyst is constructive on Churchill Downs inventory. (Picture: Related Press)

These are the emotions of Macquarie analyst Jordan Bender, who, in a word to purchasers right this moment, initiated protection of the gaming inventory with an “outperform” ranking and a $254 value goal. That forecast implies upside of 32 p.c from the June 17 shut.
In highlighting Churchill’s positioning as a novel, luxurious model within the gaming area, Bender factors to the Kentucky Derby as one of many favorable components for the inventory.
The analyst famous that the historic Churchill Downs Racetrack has “traditionally generated ~25 p.c of firm earnings earlier than curiosity taxes, depreciation and amortization (EBITDA) in a single day, has few true comps, and we imagine it ought to garner a premium valuation a number of even to a comp set of luxurious and distinctive manufacturers throughout the globe.”
Analysts are largely bullish on Churchill inventory, with the consensus Wall Avenue value goal residing at $249. However the shares are decrease by 1.50 p.c year-to-date, making it one of many 2021 laggards amongst gaming equities.
Churchill Inventory Ample Catalysts for Rebound
Bender says Churchill has a number of tailwinds that would propel the shares increased, together with dominant positioning within the historic horse racing (HRR) market in Kentucky.
The analyst forecasts that the already rising section will attain $750 million at maturity, and with Churchill holding three of the state’s eight licenses, the operator can “drive further worth, significantly to the underserved Louisville market.”

Bender can also be enthusiastic concerning the outlook for Churchill’s TwinSpires on-line betting model. Macquarie forecasts the US on-line sports activities betting/actual cash gaming segments will vault to $19.2 billion in 2025 and $37.7 billion in 2030 from $3.1 billion in 2020.

“Whereas sustaining a worthwhile strategy to the burgeoning market share alternative, we nonetheless anticipate CHDN to be a winner and drive shareholder worth,” stated the analyst.
He provides that administration’s disciplined strategy is an indication there’s a extra distinctive worth to be unearthed in Churchill’s on-line technique. TwinSpires might account for 16 p.c of Churchill’s 2022 EBITDA, in accordance with Macquarie.
Progress, Shareholder Rewards Benefit Premium
Over the previous decade, Churchill grew EBITDA at a mid-teens compound annual progress fee. Churchill’s progress fee is rising at probably the greatest paces within the gaming business. As Macquarie’s Bender notes, over the previous 5 years, the operator’s shareholder rewards program — buybacks and dividends — was topped solely by Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN).
He forecasts a possible enhance in dividends and shares repurchase plans if the corporate proceeds with promoting Arlington Worldwide Racecourse in Illinois.
“This, in our view, might be accompanied by accretive capital tasks, which we imagine might be introduced within the near-term, based mostly on earlier administration commentary on prior earnings calls,” stated Bender.

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