Churchill Downs Stock Has Its Own Triple Crown: Insiders, Institutions Love it, Earnings Are Soaring

Posted on: July 4, 2019, 02:04h. 

Last updated on: July 4, 2019, 07:31h.

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

Up more than 45 percent year-to-date, Churchill Downs Inc. (NASDAQ:CHDN), owner of the eponymous horse racing venue, is one of 2019’s best-performing gaming stocks. Several catalysts, including rising ownership among company insiders, indicate the shares could continue rising.

Churchill Downs in Kentucky. The stock is a leader among gaming equities this year. (Image: CNN)

High-ranking executives and board members accumulate a stock for one reason: because they believe it has upside potential. Data confirm Churchill Downs insiders have been gobbling up the shares.

At the end of March, Churchill Downs executives and insiders owned 14.23 percent of the company’s shares, up from 9.28 percent at the end of January, according to Guru Focus data. Executives and directors owned 1.93 million shares of the gaming firm’s shares at end of March, an increase from 1.26 million shares on January 31.

Analysts are steadily ratcheting up earnings estimates for the owner of the TwinSpires online betting portal. Early in the second quarter, Wall Street expected the Kentucky-based company to earn $2.92 per share for the April through June period.

Following record-setting wagering during the Kentucky Derby in May, the consensus estimate for Churchill Downs’ second-quarter earnings is now $3.03 a share. For the full year, analysts expect the company to earn $4.40 per share, up from $3.88 in April.

As Casino.org reported in May, Derby weekend resulted in a handle of nearly $251 million, well ahead of the then record of $225.7 million set in 2018.

Not The Only Ones

While Churchill Downs insiders fawn over the stock, they are not alone in that affection. Institutional investors controlled 57.64 percent of the gaming company’s stock at the end of April, a significant increase from 44.14 percent on the last trading day of January, according to Guru Focus data.

Institutional investors include index and mutual fund providers, endowments, pension plans and hedge funds. Speaking of hedge funds, 29 owned positions in the owner of Arlington International Racecourse in Illinois at the end of the first quarter, an increase of 12 percent from the end of last year. In two years, the number of hedge funds owning stakes in Churchill Downs has doubled.

Ken Griffin’s Citadel LLC, a $30 billion Chicago-based hedge fund and asset manager, currently is the third-largest owner of Churchill Downs stock.

The percentage of a stock controlled by funds or other high-level market participants can be instructive for ordinary investors because a lower percentage indicates the “smart money” has not flocked to a particular name in a big way.

Current levels of non-retail ownership of Churchill Downs shares compare favorably with some other gaming stocks. For example, more than 94 percent of MGM Resorts International (NYSE:MGM) shares are controlled by professional investors.

Expensive, But Worth It

With a market value of $4.68 billion, Churchill Downs is a mid-cap name and its impressive earnings trajectory (it’s expected to earn $5.08 a share in 2020) qualifies it as a growth stock.

Growth equities often command premiums to broader benchmarks and the race track operator does that. The stock has a forward price-to-earnings ratio of 25.51x compared to 20.67x on the S&P MidCap 400 Growth Index.

Jefferies analyst David Katz said in a recent interview with Barron’s that while Churchill Downs shares are pricey, investors should not over analyze that situation because if management continues executing well, the stock has the potential to appreciate further.