Update: Churchill Downs Earnings

Aug.15.14 | About: Churchill Downs, (CHDN)

Summary

The company managed to post 2Q results that beat on the bottom line but missed on the top line.

We still have a long-term bullish thesis on the company given the unique business.

The recent strong performance exhibited by 2Q results were in line with our expectations and suggests racing is gaining favor again.

Churchill Downs (NASDAQ:CHDN) released 2Q earnings that had EPS coming in at $3.21 (beating consensus of $3.17) and revenues of $303.7 million (missing consensus of $309.5 million). The company did manage to post record revenues that were up 7% y/y and record EBITDA up 12% y/y. Shares are up 5% since earnings.

However, the stock is up only 8% since we first covered the company back in August of last year. At the time, it was trading at 10x EV/EBITDA, making it the best bet of any casino or gaming-related stocks. What's more is that it was even cheaper than any other spot, with NASCAR trading at 22x, the MLB at 42x, and NFL at 34x. Churchill now trades at 11.7x - still cheaper than the other options. As we noted in August,

Churchill Downs is a solid free cash flow generator and the current is turning its focus to rewarding shareholders, with both a well-covered dividend and share repurchases. We believe that the racetrack company's unique revenue stream, which includes racing and gaming, will continue to grow as Churchill looks to new casinos and racetracks for growth -- with key options in Illinois and Kentucky. Let's not forget, Churchill, is also a staple part of the iconic Kentucky Derby.

On the Kentucky Derby topic, it remains a staple in the sporting industry. 2014 Oaks and Derby week brought in a record EBITDA.

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