What is the market’s view of Churchill Downs’ future operating performance as reflected in the current price of $117? Over the next 6 years, Churchill Downs shares will need to reach $197 to achieve average annual stock market performance of 9.0%. To achieve Upper quartile performance, Churchill Downs’ stock price will need to reach $232 by 2028.
Executive Summary
- Price Target Research identifies Churchill Downs as having: very high profitability, high expected growth, above average financial strength, and instability. Growth is a big positive influence on Churchill Downs’ valuation while Risk Profile is a big negative influence.
- Very high valuation, above market shareholder returns. Current valuation levels are very high relative to the Churchill Downs Peer Group. Recent market returns have outperformed the Churchill Downs Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Churchill Downs shares should reach a level of $889 by 2028 — an 40.4% per year total shareholder return. A 2028 stock price of $197 would reflect median performance and a price of $232 would be required to reach upper quartile performance.
- Growth has been Churchill Downs’ biggest valuation strength. Historical growth has been very high relative to the Churchill Downs Peer Group and forecasted growth is relatively very high. EPS Growth, Revenue Growth, Asset Growth, and Equity Growth have all been superior. These factors have buoyed market perceptions of Churchill Downs. Churchill Downs’ historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Churchill Downs’ consensus growth expectations are higher than historical growth.
- Return on Equity, Pretax Margin, and Pretax ROA are group leading. These factors have strengthened market perceptions of Churchill Downs. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Churchill Downs’ risk profile is unfavorable. Overall variability has been very high with very high revenue variability, very high E.P.S. variability, and relatively low stock price volatility. Financial Strength is only average and earnings’ expectations are very low. The debt/capital ratio has risen very significantly.
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