Churchill Downs Still a ‘Buy’ Amid Virginia Gaming Expansion Talks

• Virginia lawmakers recently passed two gaming expansion bills
• Churchill Downs, MGM expected to lobby against Fairfax County casino
• Analyst says Churchill Downs stock is still a “buy”

Churchill Downs (NASDAQ: CHDN) stock is off 23.40% year-to-date and some of that weakness is likely attributable to Virginia — one of the operator’s marquee markets — passing multiple pieces of gaming expansion legislation. Some analysts are defending the stock.

In a new report, Stifel analyst Jeffrey Stantial acknowledges headwinds to Churchill Downs in Virginia in the form of skill games legislation and the Fairfax County casino bill, the former of which implies new competition for the state’s historical racing machine (HRM) segment in which Churchill is one of the dominant operators.

The bill caps total machines at 35K (vs. est. 90K pre-2023 ban) with four machines per location (seven for truck stops & two for charitable). Other requirements impacting potential market size include: 1) machines are taxed at 25% plus $800 fixed fee/machine/month, 2) $5/spin max limit, and 3) localities can pass referendums to ban machines,” says Stantial.

Even with the specter of fresh competition in the commonwealth — a crucial market for Churchill Downs — Stantial reiterates a “buy” rating and $136 price target on the stock, implying upside of 57% from current levels.

Churchill, MGM Likely to Fight Fairfax County Casino

Gov. Abigail Spanberger (D-VA) has 30 days to sign the Fairfax County casino bill into law. Bender notes that’s an up-in-the-air proposition because she’s voice opposition to gaming expansion until the state creates a unified regulatory body.

“We would expect CHDN/MGM to lobby against the bill aggressively, with prior polling indicating >60% local opposition. If the referendum fails, it would undergo a 3-year cooling off period which given the 7/2029 sunset date for SB 756 implies separate legislation would be required,” notes Stantial.

The analyst adds odds are long the issue is approved by the voters, but a hang-up at the board of supervisors could keep the Fairfax County casino in the spotlight for another three years.

Positives for Churchill Downs Stock

It’s not all bad news for Churchill Downs in Virginia as the state deferred iGaming legislation, which is considered a positive for the operator due to its opposition to that form of wagering.

Looking further out, Stantial says Churchill Downs is one of the top growth stories in the gaming industry, citing prescient acquisitions and “a unique pipeline of high return on investment expansion projects.” He also notes the shares are setting up nicely heading into the Kentucky Derby.

“While horse racing viewership continues to face secular headwinds, we see potential for high-growth online sports betting operators to grow the total addressable market while CHDN continues to develop a unique flywheel and moat as the market leader in live, historical, and online horse racing,” concludes the analyst. “Valuation sits near the high end of peer group, though warranted, in our view, given CHDN’s unique growth drivers and portfolio of assets. Hence, we rate shares Buy.”