Churchill Downs attracts bull rating from Capital One ahead of earnings

Capital One Securities initiated coverage of Churchill Downs Incorporated (NASDAQ:CHDN) on Thursday with an Overweight rating. Analyst Dan Guglielmo pointed to the gaming company's robust pipeline for growth over the next three years as making it a casino sector standout.

Guglielmo and team expect outperformance for Churchill Downs (CHDN) in operations from a both revenue and expense perspective. In general, the firm is also attracted to names that are spending significant capital relative to portfolio size and gross revenue.

Churchill Downs (CHDN) is said to have best pipeline for growth within the space. "It has ~$1.1B in development spend earmarked for the next year and a half to increase the portfolio of slots/historical racing machines by 21%, table games by 9%, and rooms by 25% into 2025," updated Guglielmo. Another positive factor said to be working in its favor is that CHDN owns all of its assets and the corresponding gaming/racing licenses. Capital One also likes the expense dynamics and thinks there is margin benefit as the company adds scale in the historical racing machine segment and drives efficiency in its upsized portfolio after the P2E transaction.

The Kentucky Derby is called a bucket list item and ultra-luxury experience with perpetual-like revenue characteristics. Capital One's price target of $144 is derived from applying a 13.5X multiple to the EBITDA estimate to get an estimated forward enterprise value of ~$16.3B.

Shares of Churchill Downs (CHDN) swung 3.93% lower on Thursday to cut its year-to-date gain to below 4%. Churchill Downs (CHDN) is lined up to report Q3 earnings on October 25.