CHDN

Churchill Downs ($CHDN) Directors Each Buy 2,000 Shares After 37% Stock Plunge, Revenue Growth Continues Despite Profitability Concerns

05/07/2025 20:15

Two directors of Churchill Downs Inc. ($CHDN) have each purchased 2,000 shares following the recent stock price decline. According to corporate filings on May 5, board member Paul Varga acquired shares worth approximately $185,940 at an average price of $92.97 per share on May 2. Shortly after, director Alex Rankin purchased shares valued at about $185,300 at $92.65 per share on May 5. Both transactions were made in the form of restricted stock units (RSUs) granted for their service as directors, with the shares to be transferred upon completion of their board service. These purchases come as Churchill Downs' stock has been on a downward trajectory for about five months, falling approximately 37% from its 52-week high of around $147. Notably, on April 24, the stock plummeted 16% in a single day from $105.04 to $87.99 following the company's first-quarter earnings announcement. The stock decline appears somewhat at odds with the company's fundamental financial performance. In its Q1 2025 results announced on April 23, Churchill Downs reported revenue of $642.60 million, representing an 8.7% year-over-year increase and slightly exceeding analyst expectations of $640.64 million. However, adjusted earnings per share (EPS) decreased to $1.07 from $1.13 in the same period last year. This follows a pattern observed over recent quarters. Since the latter half of 2024, the company has consistently grown revenue while underperforming on profitability metrics relative to analyst expectations. In Q4 2024 results announced in February 2025, revenue increased by 11.2%, but EPS fell short of expectations. Churchill Downs, established in 1875 and famous for hosting the Kentucky Derby, has evolved from a pure racetrack operator into a diversified gambling enterprise encompassing live and historical horse racing, online wagering, and casino operations. The company operates through three main segments: Live and Historical Racing, Wagering Services, and Gaming. Investors are divided in their interpretation of these director purchases. Some view them as a signal that the current stock price undervalues the company, while others consider them routine transactions related to executive compensation. However, it's noteworthy that two directors purchased similar amounts at nearly the same time. The timing of these purchases after a significant stock decline suggests insiders may view the company's long-term value positively at current price levels. Paul Varga is the former CEO of Brown-Forman Corporation, where he successfully managed a portfolio of prominent spirits brands including Jack Daniel's. Alex Rankin is a business leader in Kentucky with deep understanding of the local economy and racing industry, bringing valuable regional expertise to Churchill Downs' board. Analysts currently maintain a 'buy' rating on Churchill Downs, with a median 12-month price target of $148.50, suggesting approximately 61% upside potential from current levels. However, this target has been revised downward from $165 following recent earnings disappointments and stock declines. The company's strengths include its powerful brand within the U.S. gambling industry, an impressive return on equity (ROE) of 44.26%, and a healthy profit margin of 15.19%. However, slowing EPS growth and uneven performance across business segments present potential concerns. Specifically, the Live and Historical Racing segment has shown relatively weaker profitability compared to the Gaming segment. Investors should also monitor how economic uncertainties and declining consumer confidence in the U.S. might impact discretionary spending on entertainment and gambling. The upcoming 2025 Kentucky Derby and summer season performance will likely play crucial roles in the company's short-term stock movement. In conclusion, while the director purchases may signal insider confidence in Churchill Downs' long-term value following the significant stock decline, investors should weigh this against profitability pressures despite revenue growth and challenging industry conditions.

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