“Weakness in regional gaming” and a postponement of The Rose casino in Virginia negatively impacted Churchill Downs, according to an October 18 investor note by Jefferies Equity Research analyst David Katz. He held out hopes for positive catalysts when Churchill Downs reports quarterly earnings.
Katz maintained his Buy rating on the stock and his price target of $167 per share. The stock was trading at $140.11 a share at the time of his report.
The analyst observed that Churchill Downs was outperforming its regional-casino peer group for the year to date, posting four percent revenue growth. However, that was counteracted by a three percent revenue decline at Fair Grounds racino in New Orleans and a 16 percent plunge at Oxford Casino in Bangor, Maine.
Poor performance in Mississippi was also foreseen as negatively impacting Churchill Downs’ third-quarter results. Accordingly, Katz lowered his third-quarter cash-flow projection from $127 million to $124.8 million and the fourth-quarter from $120.4 million to $115.9 million.
Bad weather in early September in Virginia has pushed back the opening of The Rose, in Dumfries, Virginia. The property’s debut had been previously delayed by an expansion of the casino floor to accommodate an additional 650 historical horse racing machines (HHR).
“The company does not anticipate any additional costs associated with the delays and expects the capital plan to remain largely unchanged,” wrote Katz of the $460 million casino. He anticipated a late-October opening and moved $4.6 million in anticipated cash flow into the fourth quarter.
Another worry for Churchill Downs was the potential incursion of Cordish Gaming into New Hampshire. The rival firm is seeking a charitable-gaming casino in Salem that would deploy 900 HHR and 40 or more table games, at a cost of $160 million.
“At the moment, the proposal is subject to regulatory approval,” cautioned Katz of the Cordish venture. “However, in our view, if approved, it could create competitive pressures for Churchill Downs’s Chasers property.”
Another Churchill Downs catchment area, Henrico County in Virginia, is being peppered with new iterations of Pace-O-Matic “skill games.” However, Katz doesn’t believe this will change the competitive dynamics in the Cavalier State, as Churchill Downs already controls a major share of the market.
