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Why Churchill Downs Stock Gained 13% in January

By John Ballard – Updated Apr 21, 2019 at 12:25AM

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The Kentucky Derby operator continues to make moves to position it for long-term growth.

What happened

Shares of Churchill Downs (CHDN 0.09%) jumped 13.1% last month, according to data provided by S&P Global Market Intelligence.

As the stock rebounded with the broader market, a Jefferies analyst upgraded it to a buy rating. The analyst cited the company's strong operating performance, balance sheet, and near-term catalysts for growth. 

Additionally, Churchill Down announced the completed acquisition of Presque Isle Downs and Casino in Erie, Pennsylvania, from Eldorado Resorts.

A drawing of jockeys riding horses in a race.

Image source: Getty Images.

So what

The acquisition of Presque Isle Downs follows other deals management has made recently, including the agreement to acquire a 50.1% stake in Rivers Casino Des Plaines in Illinois, as well as the sale of its mobile game subsidiary Big Fish Games for $990 million. 

During the third-quarter conference call in October, CEO William Carstanjen said, "With significant flexibility because of both our cash flow and low leverage, we are reinvesting in our current businesses where appropriate and pursuing strategic opportunities that we hope will create increased long-term shareholder value while maintaining capacity for dividend growth and opportunistic share repurchases. We've done this for a while and plan to continue to be thoughtful stewards of our shareholders' capital and assets." 

Churchill Downs recently invested $8.3 million in improving the guest experience for the upcoming 2019 Kentucky Derby, including building a new Infield Gate. The company also spent $32 million to upgrade parking and transportation. 

Check out the latest Churchill Downsearnings call transcript.

Now what

Churchill Downs is coming off a solid year in which revenue and operating income both grew 12% year over year through the first three quarters of 2018. 

Analysts forecast the company to grow revenue by 25% in 2019 to $1.25 billion. Adjusted earnings per share are expected to increase to $13.24, compared to a projected $13.04 for 2018. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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