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Bull Of The Day: Churchill Downs (CHDN)

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Churchill Downs (CHDN - Free Report) shares are off to the races with its shares illustrating a 185% appreciation from its March lows and the rally looks far from over. This gambling titan managed to stay relatively buoyant in the heat of the medically induced economic coma, and with its operations beginning to reopen fully, its future looks bright. Analysts have become increasingly optimistic about CHDN pushing both price targets and earnings estimates, propelling the stock into a Zacks Rank #1 (Strong Buy).

The Business

Churchill Downs is globally recognized for its iconic horse-racing event, The Kentucky Derby, but its operations encompass a much broader gambling platform portfolio. The company operates 7 casinos with 3 hotels, 2 casino joint ventures, as well as 11,000 slot machines and 200 table games across 8 states.

The enterprise has been capitalizing on the newly authorized online sports betting, which was just made federally legal after the Professional & Amateur Sports Protection Act was struck down in May of 2018. Churchill Downs operates the largest online horse race betting platform in the US, TwinSpires, as well as sports betting and iGaming platform, BetAmerica.

The Pandemic Effect

Churchill Downs has seen an accelerating topline over the past few years, with the exception of the past two quarters. The global pandemic put a short-term damper on this enterprise's operations. They were forced temporarily to shut down their horse tracks, casinos, hotels, and not allow patrons at its biggest annual event (The Kentucky Derby). 

With operations slowly reopening, I anticipate this business to come out of the pandemic stronger than ever.

The world has an appetite for gambling these days, and the stock market has been the latest conduit, with 10s of millions rushing to their online brokerage of choice. The 'pandemic traders,' as I like to call them, have been betting big on bullish out-of-the-money (OTM) call options, hoping to get rich quick. I suspect that Churchill Down's and its reopening gambling operations will be met with strong demand.

Technical Support

CHDN has been driving robust returns for its investors for years through healthy organic growth and savvy acquisitions. This stock is outperforming the broader market on effectively every timescale you could measure it on.

Over the past 5 years, the shares have appreciated 276%, almost 4 times what the broader S&P 500 was able to produce. Now CHDN is teetering at a level with its February highs representing a support, which I illustrated below (circled in blue).

It appears that CHDN is poised to jump off this support level once operations are fully functional again. Churchill Downs is a robust play for the economic recovery, and its capital gains potential is enormous in the long-run.

I suspect that this enterprise's savvy management team may be able to pick off some synergy driving acquisitions amid this period of financial distress in the entertainment sector. Either way, I have confidence that the executive team will continue to drive the same growth figures they have produced over the last decade.

Final Thoughts

Market volatility remains high as the election approaches, and many tech stocks reach frothy levels. This is an excellent long-term play if you can stomach short-term volatility. CHDN a beta above 1, so it is subject to broader market pull-backs, but I believe these shares will produce a strong alpha throughout the roaring 20s.

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