On Friday, Truist Securities adjusted its outlook on Churchill Downs (NASDAQ:CHDN) shares, reducing the price target slightly to $165 from the previous $166, while reaffirming a Buy rating on the stock. The move comes after the company's third-quarter results, which aligned with expectations, were released.
Management's discussion during the earnings call shed light on the upcoming phases of the Churchill Downs Racetrack (CDRT) and Derby projects. The firm highlighted several growth initiatives for Historical Racing Machines (HRMs) that are anticipated. The industry is closely watching the upcoming grand opening of the Rose on November 7.
Despite the generally tight conditions in the gaming sector, Truist Securities has made a modest adjustment to the expected EBITDA, lowering it by 2-3% to introduce a degree of caution both in the gaming segment and corporate forecasts. However, the analyst noted potential for a positive surprise from the Rose's performance.
The revised price target of $165 reflects a more conservative sum-of-the-parts (SOTP) valuation for the gaming operations. Nonetheless, the firm maintains its Buy rating, citing ongoing growth from the Derby and HRM segments, as well as the potential for strategic mergers and acquisitions.
In other recent news, Churchill Downs Incorporated reported record net revenue and adjusted EBITDA for its third quarter, with a 10% increase in revenue and 8% growth in adjusted EBITDA year-over-year.
The success was attributed to the company's Live and Historical Racing and Gaming segments, which saw a significant boost from the expansion of the Kentucky Derby experience and the opening of new Historical Racing Machine (HRM) properties in Virginia.
The company also reported a record $591 million in free cash flow for the first nine months of the year, a 32% increase compared to the previous year.
CapitalOne maintained an Overweight rating on Churchill Downs, citing the recent announcement of a significant renovation and development initiative at the Churchill Downs Racetrack, scheduled to occur between 2026 and 2028.
The renovation is expected to replace over 10,000 existing seats and outdated dining facilities with approximately 16,000 new seating options and a range of premium hospitality experiences. The upgraded racetrack is expected to contribute increasingly to the company's revenue and profit margins over the long term.
Recent developments include the approval of a 7% dividend increase by the Board, set to be paid in early 2025. The company also revealed plans to expand its HRM presence with new venues in Richmond, Owensboro, and Calvert City.
Despite some challenges, such as a slight decline in same-store margins at regional gaming properties and slower post-COVID recovery at Derby City Gaming, the company's strategic expansions and operational optimizations are set to continue.
InvestingPro Insights
Churchill Downs (NASDAQ:CHDN) continues to demonstrate strong financial performance, aligning with Truist Securities' positive outlook. According to InvestingPro data, the company's revenue growth stands at 12.21% over the last twelve months, with an impressive EBITDA growth of 23.35% during the same period. This robust growth supports the firm's optimistic stance on the company's Derby and HRM segments.
InvestingPro Tips highlight that Churchill Downs has maintained dividend payments for 51 consecutive years, showcasing its financial stability and commitment to shareholder returns. This track record is particularly noteworthy given the company's ongoing growth initiatives and strategic investments in projects like the Churchill Downs Racetrack and the Rose.
While the company's P/E ratio of 24.33 might seem high, it's important to consider the context of its growth prospects. The InvestingPro Fair Value of $150.04 suggests there may still be room for upside, aligning with Truist Securities' bullish outlook and $165 price target.
For investors seeking a deeper understanding of Churchill Downs' potential, InvestingPro offers 11 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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