Here's Why Investors Should Retain Churchill Downs Stock Now
Churchill Downs Incorporated CHDN is likely to benefit from strategic investments in Historical Racing Machines (HRM) technology, development efforts and Exacta acquisition. Also, the focus on TwinSpires B2B expansion bodes well. However, slow recoveries in key markets and rising capital expenditures are a concern.
Growth Drivers for CHDN Stock
Churchill Downs’ focus on HRM continues to be a key growth driver. The company is on track to open new HRM venues in Kentucky and Virginia, further expanding its footprint. The company anticipates opening Owensboro HRM venue in Kentucky in early 2025. It also expects to open "The Rose" in Dumfries, VA, in September, featuring 1,650 HRMs.
These strategic expansions into HRM technology provide high-margin investments and returns on capital. The company's acquisition of Exacta has further bolstered its growth by optimizing gaming floors, reducing technology fees and expanding B2B opportunities in Kentucky, Virginia, New Hampshire and internationally.
Churchill Downs is witnessing significant benefits from the acquisition of the Exacta central determinate system technology. Exacta has improved the performance of the company’s Virginia HRM venues by optimizing gaming floors and reducing technology fees. This vertical integration has boosted both revenues and margins. Going forward, the company emphasized converting 10% of Kentucky gaming floors to Exacta technology for long-term growth.
Churchill Downs’ TwinSpires business continues to perform well through its B2B strategy. It facilitates horse racing wagering for platforms including FanDuel and DraftKings. The company remains focused on distributing horse racing content, paving a path for long-term growth.
Churchill Downs is focusing on the Derby 151 renovation to drive growth. The Grandstand Club and Pavilion project is likely to transform 10,000 bleacher seats near the starting gate into a combination of 8,300 premium stadium seats and trackside box seats. The upgrades will enhance amenities for guests. The project is expected to increase ticket revenues, Personal Seat License inventory and sponsorship opportunities, with a capital investment of $85 million and a projected payback period of under eight years. Additionally, plans are underway to enhance guest experiences at the racetrack's front and in the infield.
Churchill Downs’ Concerns
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Shares of Churchill Downs have gained 1.9% so far this year compared with the industry’s growth of 14.6%. One of the most significant challenges CHDN is facing is the slow recovery in its core markets, particularly in Louisville. The downtown Louisville environment has been slower to rebound from the COVID-19 pandemic compared to other similarly sized cities. Derby City Gaming, is facing a tougher recovery environment, creating a headwind for the company. While the management team remains optimistic and confident in their approach, the sluggish rebound could drag on growth in the near term.
CHDN has also committed to significant capital investments, such as the $85 million Grandstand Club and Pavilion project, aimed at enhancing guest experiences. While these initiatives are expected to boost long-term revenues, they involve substantial upfront costs. The company has also hinted at further capital expenditure to purchase additional gaming machines and expand facility spaces. These investments come with financial risks if market conditions do not improve as anticipated.
CHDN’s Zacks Rank & Stocks to Consider
Churchill Downs currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Norwegian Cruise Line Holdings Ltd. NCLH, DoubleDown Interactive Co., Ltd. DDI and Carnival Corporation & plc CCL, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Norwegian Cruise Line has a trailing four-quarter earnings surprise of 5.7%, on average. The stock has rallied 22.4% in the past year. The Zacks Consensus Estimate for NCLH’s 2024 sales and earnings per share (EPS) calls for growth of 9.9% and 127.1%, respectively, from the year-ago levels.
DoubleDown Interactive has a trailing four-quarter earnings surprise of 22.1%, on average. The stock has surged 85.9% in the past year. The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Carnival has a trailing four-quarter earnings surprise of 318.1%, on average. The stock has gained 42% in the past year. The Zacks Consensus Estimate for CCL’s 2025 sales and EPS indicates an increase of 3.6% and 26%, respectively, from the year-ago levels.
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