Why Wall Street analysts are bullish on this gambling stock

It’s down 30% YTD, but the Street sees significant upside.

It is not common for Wall Street analysts to be entirely in agreement on a particular stock, but that is the case with gambling stock Churchill Downs (NASDAQ:CHDN).

Of the 11 analysts that cover it, all of them rate Churchill Downs as a buy with a median price target of $137.50 per share. That would represent a 49% increase over the current price of $92 per share over the next 12 months.

The lowest price target among analysts is $126 per share, which still suggests a 36% return. The highest price target is roughly $155 per share, which would mean a 68% return over the next 12 months.

Why are analysts so bullish on Churchill Downs? Let’s take a look.

Churchill Downs at a glance

Record revenue

Churchill Downs is known mostly as the venue where the Kentucky Derby, and other horse races, take place every year. But it has other assets as well, including casinos and racing venues in Pennsylvania, Iowa, Maryland, New York, Virgina, Illinois, Mississippi, and Kentucky.

In addition, the company generates high-margin revenue from Historical Racing Machines (HRMs) in many of these venues, HRMs are electronic gambling terminals that allow people to bet on horse races.

Analysts are bullish for several reasons, starting with the firm’s strong performance. In the most recent quarter, Churchill Downs generated record revenue of $934 million, up 5% year-over-year, while earnings jumped 4% to $217 million, or $2.99 per share. Live and historical horse racing was the major revenue driver, led by a surge in HRM terminal revenue and record handle and television viewing audience for the Kentucky Derby.

Churchill Downs also recently acquired 90% stake in Casino Salem in New Hampshire where it intends to develop a $180 million charitable gaming, entertainment, and dining destination.

A good value

In addition to the strong earnings, Churchill Downs recently announced a new $500 million share repurchase program, which should generate positive momentum for the stock.

Churchill Downs stock got several price target upgrades from analysts, post-earnings. Mizuho boosted its target to $142 per share from $136 per share, while Barclays bumped it up by $4 to $131 per share. In addition, Susquehanna raised its price target for Churchill Downs by $5 to $126 per share.

More recently, Truist rated Churchill Downs stock as a buy and set a $145 per share price target. Truist cited growth opportunities from its recently opened Rose Gaming Resort in Virginia, an HRM facility, and the newly acquired Casino Salem venue in New Hampshire. It also anticipates continued momentum for the Kentucky Derby and its sister race, the Kentucky Oaks, which just signed a primetime TV deal with NBC.

Churchill Downs stock is down about 30% this year, but that has brought down its valuation. It currently has a P/E ratio of just 16.

Churchill Downs has not been a good performer in recent years, with a 5-year annualized return of just 1.3%. But its performance is stronger over the past 10 years with an average annual return of 15%. At this low valuation, and some solid momentum, analysts are betting on growth for Churchill Downs.