BofA bullish on Churchill Downs shares on strong growth potential

On Monday, BofA Securities adjusted its stance on Churchill Downs (NASDAQ:), raising the stock’s rating from Neutral to Buy and increasing the shares target to $155 from the previous $145. The revision comes as the analyst assesses the company’s valuation in comparison to its high-growth consumer peers.

Churchill Downs, known for hosting the iconic Kentucky Derby, is currently trading at 11.4 times its projected 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA). This is significantly higher than the average of 6.8 times EBITDA for its peers in the gaming industry.

The analyst pointed out that despite the higher valuation, Churchill Downs stands out with its potential to deliver double-digit EBITDA growth, a feat that many gaming peers are finding challenging to achieve organically.

The company’s growth prospects are supported by several factors, including its ongoing Historical Racing Machine (HRM) buildouts, the exclusive rights to the Derby, and a balance sheet that boasts lower leverage than the sector average. These elements contribute to the belief that the impact of consumer cyclicality on Churchill Downs may be comparatively limited.

In contrast to the gaming industry’s average, high-growth consumer companies are valued at an average of 14.7 times their projected 2025 enterprise value to EBITDA. The analyst’s commentary reflects a positive outlook on Churchill Downs’ unique positioning and growth trajectory within the consumer sector.

In other recent news, Churchill Downs reported a noteworthy 8% second-quarter earnings beat, with revenues reaching $591 million, surpassing the $548 million projection by Mizuho Securities.

The company’s EBITDA stood at $242.5 million, exceeding the firm’s estimate of $214 million. In response to this, Mizuho Securities raised its price target for Churchill Downs’ shares to $143.00, maintaining a ‘Buy’ rating.

Truist Securities also increased the price target on shares of Churchill Downs to $166 from $165, maintaining a ‘Buy’ rating. This adjustment was influenced by the robust performance of the company and a positive outlook shared during the earnings call.

The firm’s analysts anticipate that Churchill Downs’ portfolio will generate approximately $1.4 billion in EBITDA by 2025 to 2026 once its operations are fully open and ramped up.

In addition to financial performance, the company announced the retirement of board member Robert L. Fealy. His contributions to the company’s growth and strategic direction were highly valued, as acknowledged by the company’s President and CEO, Bill Carstanjen.

Furthermore, the company’s Live and Historical Racing segment reported $100.8 million in revenue, exceeding both Mizuho’s estimate of $86.3 million and the consensus estimate of $89.6 million. These recent developments have led to a positive outlook on the company’s future performance.

InvestingPro Insights

As Churchill Downs (NASDAQ:CHDN) garners a bullish outlook from BofA Securities, it’s notable that the company is not only trading at a premium compared to its gaming industry peers but also showcases a robust financial profile. According to InvestingPro data, with a market capitalization of $9.81 billion and a P/E ratio standing at 24.3, the company’s valuation reflects confidence in its future earnings potential. The company has demonstrated significant revenue growth over the last twelve months, up by 19.35%, which could be an indicator of its strong market position and successful growth strategies.

InvestingPro Tips highlight that Churchill Downs has a history of rewarding its shareholders, raising its dividend for 13 consecutive years and maintaining dividend payments for an impressive 50 consecutive years. This consistent return to shareholders signals a stable financial foundation and commitment to shareholder value. Additionally, analysts have revised their earnings upwards for the upcoming period, suggesting that the company’s financial health may continue to improve.

For investors looking for further insights and guidance, there are additional InvestingPro Tips available for Churchill Downs at https://www.investing.com/pro/CHDN. This includes a deeper analysis of the company’s financial metrics and future prospects.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.