Following tours of Churchill Downs properties on March 27, Jefferies Equity Research analysts posted an upbeat report on the company the next morning. In it, they reiterated a $162 per share price target and a Buy rating on the stock.
Lead analyst David Katz reported that Churchill Downs management was highly focused on the upcoming Kentucky Derby and capital investment in the company’s eponymous racetrack. “Positive progress” has been made at Churchill Downs’s slot parlors in Virginia and Kentucky, which specialize in historical horse-racing games.
“We believe leverage is a key risk element for [Churchill Downs], which remains the prominent sector growth story and best risk-reward,” Katz summarized.
Discussion with Churchill Downs executives centered on $900 million in planned upgrades to the Louisville track, with an eye toward the 2028 Derby. “While the magnitude is larger than past investments, the demand for more and better seating, coupled with the high ceiling on pricing, suggest the projects should generate strong returns,” wrote Katz, who suggested a 20 percent return on investment was possible.
Touring the Churchill Downs facility impressed Katz and his colleagues. The March 28 investor report added that management believed it could upgrade the track without disrupting operations.
While in Louisville, Katz and his team toured Derby City Downtown, a slot venue whose business had been slow to gain traction. Management said it was ramping up a joint sales-and-marketing effort with the precursor casino, Derby City, and that it’s confident in the long-term prospects.
Turning to Virginia, Katz didn’t see any notable macroeconomic weakness in the Washington, D.C., area, which bodes well for Churchill Downs’s The Rose casino in Dumfries. The $490 million casino opened in the fourth quarter of 2024 and was said to be improving its business.
Although Churchill Downs is carrying a debt load of four times cash flow, executives pronounced themselves “comfortable” with the leverage. Katz dissented, writing, “The balance between capturing opportunistic growth and reaping the cash flow from ramping projects from the past few years to reduce leverage in an uncertain economy remains a debate that we believe weighs on the shares, with our leaning toward lower leverage.”
Still, the analyst said he was at ease with his bullish perspective on Churchill Downs overall. He termed it “the strongest upside opportunity in land-based gaming, which has been a notably weak sector.”
Katz ended by praising the asset value of the Churchill Downs portfolio and the growth of the Kentucky Derby. Weaker performance at some outlying casinos, he said, “could improve over time.”
