Is It Time To Reassess Churchill Downs (CHDN) After Its Recent Share Price Slide?

• If you are wondering whether Churchill Downs at around US$87.57 is a bargain or a value trap, you are in the right place for a closer look at what that price might really represent.
• The stock has recently shown mixed momentum, with a 4.6% gain over the last 7 days contrasting with an 8.9% decline over 30 days and a 21.0% drop over the past year.
• Recent coverage of Churchill Downs has focused on its role as a long established name in racing and gaming, and ongoing interest in how its assets and brand are being valued in the market. This backdrop helps explain why investors are paying close attention to how today’s share price lines up with the underlying business.
• On Simply Wall St’s valuation checks, Churchill Downs currently has a valuation score of 6 out of 6. This sets up a closer look at common valuation methods next, and later on, a broader framework that can help you judge the company’s value more confidently.

Find out why Churchill Downs's -21.0% return over the last year is lagging behind its peers.

Approach 1: Churchill Downs Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model looks at the cash Churchill Downs is expected to generate in the future and discounts those projected cash flows back to today to estimate what the business might be worth right now.

For Churchill Downs, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month Free Cash Flow is about $113.0 million. Analysts provide detailed estimates for the early years, and Simply Wall St then extrapolates further out. This includes a projected Free Cash Flow of $689.0 million in 2028 and extends to around $831.1 million in 2035, all in $.

Bringing all those projected cash flows back to today results in an estimated intrinsic value of about $128.49 per share. Against a recent share price around $87.57, the DCF output suggests the stock is 31.8% undervalued based on these inputs and assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Churchill Downs is undervalued by 31.8%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Churchill Downs.

Approach 2: Churchill Downs Price vs Earnings

For profitable companies, the P/E ratio is a useful way to relate what you pay for each share to the earnings that the business is currently generating. It helps you judge whether the price you see on the screen lines up with the earnings power that already exists today.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower P/E.

Churchill Downs currently trades on a P/E of 15.94x. This sits below the Hospitality industry average of about 21.11x and below the peer average of 22.58x that Simply Wall St uses for comparison.

Simply Wall St also calculates a proprietary “Fair Ratio” of 25.02x, which is the P/E that might be expected after considering factors such as Churchill Downs’ earnings growth profile, profit margins, industry, market cap and key risks. This Fair Ratio can be more informative than a simple peer or industry comparison because it adjusts for these company specific characteristics rather than assuming all firms deserve the same multiple.

Set against this Fair Ratio of 25.02x, the current P/E of 15.94x suggests the shares are trading at a discount on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Churchill Downs Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as a simple tool on Simply Wall St’s Community page that lets you spell out your story for Churchill Downs, link that story to a financial forecast and fair value, compare that fair value with the current price to decide whether the shares look attractive to you, and then have your view update automatically when new earnings, news or analyst assumptions come in. One Narrative on Churchill Downs can lean optimistic around premium Derby experiences, new venues and digital wagering and point to a higher fair value. Another focuses on concentration in horse racing, regulatory and iGaming uncertainty and arrives at a lower fair value. This gives you a clear way to see where you sit between those two ends of the range.

Do you think there's more to the story for Churchill Downs? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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