We recently compiled a list of the 10 Best Casino Stocks To Buy According to Analysts. In this article, we are going to take a look at where Churchill Downs Incorporated (NASDAQ:CHDN) stands against the other casino stocks.
A Quick Recap of the Global Gambling Industry
The world has seen a rapid growth in online gambling recently, which is fueled by the legalization of sports betting around in many countries. The United States ban on sports betting was lifted in 2018 since then many states have moved to allow such activities online as well.
Makers of FanDuel and BetMGM have flooded the United States market with promotional content and advertising targeted at sports fans, encouraging them to participate in their fantasy leagues. Sports betting companies use various marketing techniques to cash in the sports seasons. In one of the BetMGM promotions, its brand ambassador Jamie Foxx, a movie star, encouraged sports fans to try betting on various outcomes in the game.
The advertisements have been working well to drive revenue for the companies. As per the American Gaming Association, in 2023, online sports bookmakers took more than $114 billion in Bets. Moreover, the US revenue from online sports betting reached around $16.9 billion during the same year.
After the United States, many other countries are working on building casinos to attract foreign tourism. As per a CNBC report on September 1, Thailand after Singapore and Macau is looking to develop casinos in the country. The strategy worked well for Macau as it overtook the title of the world’s largest gambling hub from Las Vegas. Singapore has been reaping the benefits as well from its two 14-year-old casinos. Thailand has now joined the race, and it is expected that the country will give tough competition to both Macau and Singapore. Its casinos are expected to generate $5 billion in revenue, which is 1% of the country’s GDP.
In one of our recent articles titled, 7 Best Small-Cap Casino Stocks Hedge Funds Are Buying, we found that Asia Pacific is one of the major contributors to the global betting industry. Here’s an excerpt from the piece:
“Legalization of gambling, rapid urbanization, increased use of social media, and rising internet penetration rate are factors driving market growth. As per the report, the Asia Pacific region is the main contributor in the global betting industry accounting for more than 32.4% of the total market valuation. The Asia Pacific region is followed by North America and Europe. Looking ahead, South America and Africa are expected to be the next hot markets for gambling and casino companies. The South American region is expected to grow at a CAGR of 23.4%, whereas Africa is expected to grow at 8%. Rapid legalization and increasing disposable income in these regions contribute to the growth.
If we look at the segment-wise analysis, the lotteries segment accounts for more than 53% of the total market value and is expected to grow at the fastest rate during the forecasted period.”
Are Sports Betting Stocks Slipping Due to the Upcoming Tax?
Illinois lawmakers are drafting a new budget that includes a sharp increase to the state tax on sports betting operators. On May 28, CNBC’s reporter Contessa Brewer mentioned that operators in Illinois have paid 15% on sports betting since it went live in June 2021. The new tax proposal is expected to increase the tax to a range of 20% to 40% depending on gross receipts. Meaning that the largest betting operators are expected to be attacked the highest with this increase.
The law is yet to be passed, but if it gets approved it will make Illinois’ highest tax rate the second highest behind New York and New Hampshire. For context, Illinois is the 4th largest state for sports betting and betters waggered more than $1.2 billion in March 2024 alone. Sports betting associations are not happy with the tax proposal. The CEO of one of the largest sports betting operators in the United States mentioned that the burden of this tax is going to shit to the consumers.
Now that we have looked at the overall gambling and casino industry. Let’s talk about the 10 best casino stocks to buy according to analysts.
Our Methodology
We used the Finviz stock screener to come up with stocks operating in the gambling and casino industry. First, we aggregated a list of casino stocks that were most widely held by hedge funds in Q2 2024. Next, we ranked them based on the average price target upside as per Wall Street analysts. The list is ranked in ascending order of the average price target upside as of September 1.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A city skyline looking down on a busy racetrack with jockeys on horseback.
Churchill Downs Incorporated (NASDAQ:CHDN)
Average Price Target Upside as of September 1: 18.01%
Number of Hedge Fund Holders: 31
Churchill Downs Incorporated (NASDAQ:CHDN) is a gambling and casino company that focuses on horse racing, online betting, and gaming entertainment. The company operates through three segments: Live and Historical Racing, TwinSpires, and Gaming. It also runs Terre Haute Casino Resort in the United States.
The Live and Historical Racing segment contributes around 42% of the yearly revenue for the company. The Kentucky Derby racetrack that the company holds, hosts one of the longest continuously held annual events in the United States, generating high margins and free cash flow for the company.
Moreover, TwinSpires is one of the largest online wagering platforms in the United States. These strategic edges that the company has resulted in a strong fiscal 2023, with revenue growing 36% and adjusted EBITDA growing 34% during the year.
The second quarter performance was also exceptional and above analyst expectations. Churchill Downs Incorporated (NASDAQ:CHDN) grew its revenue by $891 million, a 16% growth year-over-year. The growth was mainly led by a strong performance in the Live and Historic Racing segment which contributed 9%.
Earnings of Churchill Downs Incorporated (NASDAQ:CHDN) also improved significantly during the quarter, again supported by the racing segment. The adjusted EBITDA of the company grew 22% year-over-year to reach $445 million during the quarter.
Investors have confidence in management’s capability to continue driving growth for the company.
The London Company Mid Cap Strategy stated the following regarding Churchill Downs Incorporated (NASDAQ:CHDN) in its Q2 2024 investor letter:
“Churchill Downs Incorporated (NASDAQ:CHDN) – CHDN outperformed in 2Q as recent results exceeded expectations, and the 150th Kentucky Derby delivered growth above expectations as well. Additionally, in our view, the value creation from recent acquisitions is becoming clearer to the market. We continue to view CHDN as a high-quality business run by a management team with a track record of astute capital allocation and a strong pipeline of opportunities for continued growth.
Increased: Churchill Downs (CHDN) – The increase reflects our confidence in the long-term outlook for the business and our desire to reduce cash in the portfolio.”
The stock was held by 31 hedge funds in Q2 2024, with total stakes worth $673.51 million. Analysts are positive about CHDN, 10 analysts have a strong Buy rating on the stock, with their median price target of $164 pointing towards an 18% upside.
Overall CHDN ranks 9th on our list of the best casino stocks to buy. While we acknowledge the potential of CHDN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
