Churchill Downs (CHDN): Zacks Rank Buy

Zacks

Churchill Downs, Inc. (CHDN) has been moving steadily higher since releasing strong first quarter 2012 results, which included a 173% earnings surprise. Moreover, shares have shot up 38% over the past 6 months and is currently trading around its 52-week high.

This diversified gaming company became a Zacks #1 Rank (Strong Buy) stock on March 15.

Five Straight Positive Surprises

Churchill Downs has beaten the Zacks Consensus Estimate for five consecutive quarters now; the past three have surpassed by triple-digit percentages with an average of 286.5%.

On March 7, the company reported a profit of 8 cents per share for the first-quarter 2012, against a loss of 19 cents in the year-ago quarter. The Zacks Consensus Estimate was calling for a loss of 11 cents. The turnaround was attributed to the company's diversification and seasonal factors.

Revenues jumped 5% to $138.2 million, beating the Zacks Consensus Estimate by 5.85%. A 20% growth in the online business segment drove the upside in revenue.

EBITDA surged 55% year over year to $17.3 million, benefiting from an upside in all three segments - racing (up 9%), online (up 38%) and gaming (up 16%).

Earnings Estimates Climbing High

The Zacks Consensus Estimate for 2012 is currently $3.18 per share, which is up 1.6% in seven days and 5.3% in 30 days.

For 2013, the Zacks Consensus Estimate is up 5% in the past week to $3.57 per share, which suggests year-over-year profit growth of more than 12%.

Reasonable Valuation

Churchill Downs currently trades at a forward P/E of 19.1x, a 24.0% premium to the peer group average of 15.4x. But this doesn't seem too expensive given the company's long-term EPS growth rate of 25%.

However, on a price-to-book basis, shares currently trade at 1.76x, a 13.5% premium to the peer group average of 1.55x.

Market Performance & Technicals

The share price hasn't moved smoothly higher over the past six months, but it has remained far above its 200 day moving average and S&P 500. The beta of the company remains 1.23, which should help it outperform the benchmark index in the near-term.

Churchill Downs is trading just 4% below its 52-week high. The company generated a year-to-date return of 16.2% versus 4.0% for the benchmark.

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Louisville, Kentucky-based Churchill Downs was incorporated in 1928 and is renowned for its horse-racing facilities. The company also operates electronic gaming systems and owns several casinos. With about 2,000 employees worldwide, the company operates in Kentucky, Florida, Louisiana, Illinois and Mississippi.

With a market capitalization of $1.02 billion, Churchill primarily competes with Caesars Entertainment Corporation (CZR) and MI Developments Inc. (:MIM).

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