Churchill Downs (CHDN) Stock Could Trade Below Fair Value Today

Churchill Downs has seen its stock fall a long way over the past several years, even as fresh investor interest and new plans around the Kentucky Derby keep it in the headlines. With the share price recently closing at US$79.96, the key issue for anyone looking at Churchill Downs is whether that level is supported by the cash the business is expected to generate.

• The share price has fallen 36.0% over 5 years. This puts the focus squarely on whether the current market value still lines up with the company’s underlying cash flows.
• Mike Repole’s recent purchase of 1,000,000 shares and push to grow the commercial side of thoroughbred racing may support different expectations for future cash generation and how quickly those cash flows arrive.
• What if you looked at Churchill Downs through its earnings instead? See what Churchill Downs's 13.5x P/E says about the price.

The issue now is whether Churchill Downs' present share price can be explained by an intrinsic value estimate based on its cash flows.

If you want to test the same cash flow question beyond Churchill Downs, you can line it up against a broader set of 29 high quality undervalued stocks.

Is Churchill Downs a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) approach here looks at the cash Churchill Downs can return to shareholders over time and then discounts it back to today. On the latest twelve month numbers the group produced free cash flow of about $184.9 million. The model then leans on a ramp up in projected cash generation that reaches the mid hundreds of millions of dollars in the early 2030s. Those projections imply a business that is expected to keep producing cash at a higher level than it has recently, rather than a shrinking operation.

The DCF output currently suggests an estimated intrinsic value that is substantially above the market price of $79.96. Mike Repole’s recent move to build roughly a 1.5% stake and push for a bigger commercial footprint for the Kentucky Derby and related assets helps explain why some investors are willing to underwrite stronger long term cash flow than the share price implies today. For readers who want the full set of assumptions and the exact valuation number, the detailed model is here. Find out what Churchill Downs could be worth using our Discounted Cash Flow (DCF) estimate.

The Churchill Downs Narrative: What Would Justify Today's Price?

Churchill Downs' valuation debate only really comes into focus once you spell out the future that would have to unfold for today’s share price to look too low or too demanding. Narratives on Simply Wall St’s Community page do exactly that by tying specific assumptions on growth, profitability and earnings power to a single fair value line, so each story about catalysts and risks can be tracked against what actually happens over time.

One of the top community narratives on Churchill Downs: 39% undervalued

"Strategic review and potential sale of nine regional gaming properties is expected to recycle capital into higher return projects at Churchill Downs Racetrack..."

Discover why this Narrative puts Churchill Downs at 39% undervalued.

Before moving on from Churchill Downs, check who is actually at the wheel

Cash flow models only tell part of the story, because the people choosing where to invest each dollar and how they are rewarded can tilt long term outcomes in very different directions. See who runs Churchill Downs and how they are paid.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com