We initiate on CHDN at Strong Buy with a $131 PT. CHDN is a leading U.S. racing, online wagering, and gaming operator across three fast-growing segments: Live and Historical Racing, TwinSpires, and Gaming.
Our Strong Buy is based on three conviction drivers:
- We model $6.45 and $7.30 of diluted EPS for FY25E and FY26E (13% annualized and meaningfully ahead of consensus), driven by the company's $900 mn Skye/Conservatory hold, which materially reduces capital charges and unlocks >$0.30 of incremental annual EPS by FY26E.
- Management is accelerating high-margin HRM expansion in VA, with ramping The Rose and additional Richmond/Henrico capacity driving a 37% machine count increase at 45-50% incremental EBITDA margins.
- The $500 mn share repurchase will retire 4-5% of shares in 18 months, compounding a strong per share profile.
Market focus on transitory Derby ticket softness/1Q headwinds misses the improving core profitability at CHDN, and trading at the 32nd historical pctile for P/E, we see our 18.0x 2026 forward target multiple as well supported.
Key risks include market caution on sector multiples/near-term event volatility, which we see as largely manageable vs. the upside.
Bottom line: our high conviction is driven by a unique combination of above-consensus earnings growth, margin expansion, and capital returns, which we see as attractive from a R/R perspective for forward-looking investors.