Shares of Churchill Downs (NASDAQ: CHDN) may get a elevate from the operator’s plans to proceed enhancing its namesake Kentucky racetrack prematurely of the Kentucky Derby subsequent Could.
Mystik Dan profitable the Kentucky Derby in Could. An analyst is bullish on Churchill Downs’ growth plans on the Kentucky observe. (Picture: ESPN)
Truist Securities analyst Barry Jonas lately met with Churchill executives on the storied observe and got here away constructive on the potential impression of enhancements. He has a “purchase” score on the inventory with a $166 value goal, which suggests upside of about 20% from present ranges. The gaming firm is planning to spend $80 to $90 million to renovate the grandstand at its eponymous Kentucky racetrack.
The announcement was made together with the gaming firm’s second-quarter earnings launch, and the operator expects these enhancements might be finalized earlier than the 2025 version of the Derby. Jonas estimates a full return on funding might be realized in eight years.
We see a number of alternatives for extra worth enhancing tasks at [the track], given what we see as sizable shopper demand and alternatives to extend spend (and worth) per Derby attendee,” noticed the analyst.
Churchill is committing to new facilities on the iconic Kentucky observe as an avenue for supporting the broader suite of Derby Week festivities and races. In 2023, deal with for Derby Week and the Derby itself topped information.
Derby Nonetheless a Prime Catalyst for Churchill Downs Inventory
In his observe, Jonas known as the Kentucky Derby “the crown jewel of the portfolio” for Churchill Downs, and that evaluation is correct as a result of ticket gross sales alone account for 60% of the operator’s Derby Week income. Jonas stated the gaming firm has extra room to proceed enhancing the observe by way of capital expenditures.
That’s pivotal as a result of prior enhancements on the observe already paid off. The Derby is likely one of the most in-demand dwell sporting occasions within the US as highlighted by the actual fact demand for premium seating continues to outpace provide, based on Churchill administration. A 3rd of ticket gross sales for the “run for the roses” are tied to three- to seven-year contracts that patrons can’t cancel. The opposite two-thirds are offered prematurely of the race.
As for Churchill’s TwinSpires, which broke Derby information final yr as properly, Jonas known as it “gradual, regular, and resilient,” noting it’s benefiting from horseracing offers with DraftKings and FanDuel.
Along with its portfolio of racetracks, Churchill Downs operates 12 regional casinos throughout 10 states, and historic horse racing (HHR) amenities in Kentucky, Virginia, and shortly, in New Hampshire. Jonas famous that the inventory trades at a premium to others in his protection universe, however cautioned that Churchill isn’t instantly corresponding to conventional regional on line casino operators.
Derby Metropolis Can Discover Its Footing
Jonas additionally famous that the gradual begin for Derby Metropolis Gaming isn’t overly regarding. The $90 million historic horse racing (HHR) venue opened final December in downtown Louisville and has been considerably sluggish, however that’s not inflicting administration to stress.
Churchill executives are “unconcerned with the modest ramp, pointing to Newport and Turfway as examples of different profitable properties that obtained off to a gradual begin earlier than enhancing,” noticed the analyst.
Jonas added that growth of Churchill’s HHR facility in Owensboro, Ky. is on tempo to be accomplished and open early subsequent yr.
