Churchill Stock Supported by Analysts Following Spring Meet Suspension

Posted on: June 5, 2023, 03:21h. 

Last updated on: June 5, 2023, 03:30h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Churchill Downs (NASDAQ: CHDN) stock drew the support of some Wall Street analysts Monday following the operator’s suspension of its spring meet amid the deaths of 12 race horses over the past month.

Ellis Park
Horses break from the starting gate in a recent race at Ellis Park in Henderson, KY. That’s where Churchill Downs moved its spring meet, but analysts remain bullish on the stock. (Image: Ellis Park/Twitter)

Last Friday, the gaming company announced its spring session will be halted starting June 7 and will be moved to Ellis Park Racing & Gaming in Henderson, Ky. on Saturday, June 10. Churchill Downs is undertaking a comprehensive review of its safety standards and track surface following 12 equine deaths, including several in the days leading up to last month’s Kentucky Derby.

Officials haven’t been able to pinpoint a link between the deaths. Analysts aren’t overreacting to the suspension of the spring meet. Rather, some are reiterating bullish views on shares of Churchill.

Pending any capital consumption that may be required as a conclusion of the review, the events are tragic and unfortunate but unlikely to impact our thesis on the shares,” wrote Jefferies analyst David Katz in a note to clients on Monday.

Katz maintained a “buy” rating on the shares, which fell 6.11% today on volume that was nearly double the daily average.

‘Bad PR,’ but Limited Financial Impact

Katz remains constructive on Churchill stock due in part to a favorable consumer environment and capital markets being open, should the company need to raise cash.

Likewise, Wells Fargo’s Daniel Politzer sounded a bullish tone on the gaming equity. In a Monday report to clients, he acknowledged that suspension of the spring meet was “not ideal” and amounts to “bad PR” for the operator, but added the company is doing the right thing and that near-term financial impact is likely muted.

“Outside of the Derby, Churchill Downs doesn’t make much money on racing and, as seen during the pandemic, people who want to bet on racing will still do so online,” observed Politzer.

Politzer maintained an “outperform” rating with a $155 price target on Churchill stock. That implies upside of 16% from Monday’s close.

Reputational Damage Possible

Jefferies’ Katz added that “material economic impact” to earnings by way of the spring meet suspension is unlikely for Churchill Downs because the Kentucky Derby accounts for the bulk of the operator’s second-quarter financial results, and that event already took place.

In fact, Derby Day and Derby Week betting handles surged to all-time highs. Churchill Downs CEO Bill Carstanjen said in a May statement that Derby Week earnings before interest, taxes, depreciation, and amortization this year could be $14 million to $16 million ahead of the record set in 2022.

Still, the risk to Churchill Downs, a stock that’s broadly loved on Wall Street, could be reputational, according to Wells Fargo’s Politzer, and that sentiment could extend to horse racing itself.

Recent tests of the Churchill Downs track surface didn’t reveal anything out of the ordinary and investigations by the Kentucky Horse Racing Commission (KHRC) and the Horseracing Integrity and Safety Authority (HISA) weren’t able to pinpoint a commonality between the 12 equine deaths.