Wall Street Bets: Analysts take on Kentucky Derby, DraftKings, VICI, ESPN Bet

May 6, 2024 12:34 PM
Photo: CDC Gaming Reports
  • Rege Behe, CDC Gaming Reports
May 6, 2024 12:34 PM

Wall Street Bets is a roundup of recent notes from analysts covering the gambling industry.

Churchill Downs

The 150th running of the Kentucky Derby last weekend is the crown jewel of Churchill Down’s portfolio. Jefferies analyst David Katz, citing figures released by Churchill Downs, noted wagering from all sources reached $320.5 million on Derby Day, an 11.0% year-over-year jump, and that Twin Spires’ handle for races at Churchill Downs on Derby Day was $92.1 million, up 22.0 year-over-year.

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“The record handle and EBITDA from the 150th Kentucky Derby should not come as a surprise and is approximately in line with our existing forecast,” Katz wrote. “The result nevertheless supports two aspects of our thesis on the stock. First, it demonstrated Churchill Downs’ ability to execute and grow the iconic asset. Second, the capital investment execution broadly is a positive given the growth plans. We expect a neutral to modestly positive reaction in the shares.”

DraftKings

DraftKings’ 1Q24 results drew keen interest and positive responses from Wall Street analysts.

In a May 6 statement, J. P. Morgan analyst Joseph Greff wrote, “We reaffirm our overweight rating on our anticipation of DraftKings’ continued execution in an appealing sector, with attractive growth prospects and an ability to leverage its scale to realize operating expense rationalization.

We up our year-end 2024 price target to $56 (up $1), implying ~25% plus upside potential from current levels and is based on a 20x target multiple applied to our 2026E EBITDA plus estimated year-end 2026 cash of $3.845 billion, discounted back one year at 10%.  Of note is that we estimate that DraftKings should have $7 in cash per share at the end of 2026.”

“DraftKings followed its strong Q1 release last night with very positive call commentary this morning,” wrote Truist Securities analyst Barry Jonas in a May 3 note. “With another beat and raise in the books, we note management continues to execute towards its long-term targets. We move our 2024 estimates slightly above the mid-point given management’s track record and momentum across structural hold as well as acquisition, retention and engagement. Reiterate Buy with $55 PT.

VICI Properties

In a May 2 note about VICI Properties, Jefferies’ David Katz wrote, “The company carries on its solid execution of capital allocation to drive future growth in incrementally volatile capital markets with some opacity on the interest rate outlook. The company continues to differentiate itself in the agility and diversification of its investments, which should provide for both external and internal growth continuation, which is currently not reflected in the shares, in our view, which supports our long-term thesis. Reiterate Buy.

Penn Entertainment

Regarding Penn Entertainment’s 1Q24 results, Truist’s Barry Jonas wrote, “Following Q1’s miss, Penn lowered 2024 guidance, with Interactive down -20% from prior factoring Q1 hold and current handle/market share trends. Shares spiraled on the guide-down; and while we didn’t quite call the bottom with our recent upgrade, we believe our thesis still fundamentally holds. An ESPN Bet success (we could potentially get some indication with new functionality around football season) could drive material upside; but we think there is real unrecognized value in Interactive even outside of ESPN Bet. We lower 2024E EBITDAR by -6% to the mid-point of new guidance, with small tweaks to 2025E. Remain Buy-rated with a $23 PT.