Two Wall Street analysts didn’t even wait for Thursday’s earnings call by Churchill Downs before expressing their contentment. Both David Katz of Jefferies Equity Research and Barry Jonas of Truist Securities made their feelings known early.
Observing that Churchill Downs beat forecasts across all of its segments, Jonas punningly headlined his advance report, “Exacta So Haute Right Now.” It was a double play on words, referring both to the company’s Exacta Systems purchase, which closed in August, and the recent opening of Terre Haute Casino in Indiana.
Jonas called Churchill Downs’s earnings beat stronger than he expected, to the tune of 12 percent higher than Wall Street anticipated. Exacta’s early contribution was particularly noted.
Elaborated Katz, “The quarter came in well ahead of expectations, driven by historical horse racing (HRM) operations and TwinSpires, which should be positive for the shares. The timeline and budget expectations for planned capital expectations remain on track and the forthcoming 150th Kentucky Derby should provide a near-term catalyst given the considerable capex coming online.”
The Jefferies analyst predicted a run-up in Churchill Downs shares following the news. The stock spiked early on Thursday before settling at $131.72 a share, up from $123.39.
Although the Virginia Legislature was in the process of legitimizing now-banned “skill” games, Jonas observed that the status quo was working to Churchill Downs’s benefit. “While not yet finalized, the legislative saga to re-legalize the games looks stalled … which we see as a positive.”
Although Jonas said he would be listening to Thursday’s call for commentary on the evolving skill-game situation in the Cavalier State, none was forthcoming. (Katz had no such expectations.) He was also looking forward to color on the early going in Terre Haute, said to be performing above expectations.
As for Churchill Downs’s signature event, the Kentucky Derby, “We expect booking trends have remained robust as recent renovations (Paddock/Jockey Club) have completed.”
Historical racing machines were a particular revenue propellant, as was live racing, both 11.5 percent higher than expected; $28 million was derived from Virginia and Kentucky HRMs, boosted by $6 million saved through the Exacta integration.
Casinos also came in well ahead of forecasts, generating $123 million in revenue, although five percent down from the first quarter of 2023. Management attributed that to severe weather in January, the bane of many regional casinos.
Katz identified a future catalyst for this division, noting that Rose Gaming Resort in northern Virginia was on pace to open in September. When it does, it is slated to have 1,650 HRMs at a cost of $460 million.
Churchill Downs’s online TwinSpires subsidiary also outperformed, vaulting 35 percent from 2023. This was achieved despite a slight decrease in horse-race betting volume.
Exacta alone contributed $15 million to the company’s cash flow. Jonas added, “We think there remains opportunity for even further growth for Exacta, providing central determinant system services to third-party HRM providers in new markets (i.e., New Hampshire) and further efficiencies in [Churchill Downs] properties.”
Churchill Downs repurchased $22 million in stock last quarter, with $193 million remaining unspent. Cash on hand was $222 million, against $4.9 billion in debt.
Of the stock repurchases, Katz opined that they “remain a key pivot debate, given the elevated leverage on capex coupled with the pressured share price.”
