4/4/12
As of the writing of this article,
the broader markets have sold off sharply from their highs and the growth
stocks were suffering the most, while the high dividend payers (i.e. KFT, VZ,
ED, etc…) held up pretty well and outperformed. While I think we could see a rally over the next couple
days, I still see the markets trending lower, with the S&P trading down to
1375. While I still favor the
stocks that pay hefty dividends, this week I’m writing about a stock that is
“in season,” Churchill Downs (CHDN). The stock is currently trading at
$59.00. For those who are not too
familiar with horseracing, Churchill Downs provides both horseracing content
and technology for consumers and businesses. The company offers gaming products through its casino in
Mississippi and slots and video poker in Louisiana and Florida. Along with running Churchill Downs in
Louisville, they also own and operate Arlington Racecourse in my hometown of
Arlington Heights. Additionally,
they offer 11 off-track betting facilities in Illinois, own Calder Racecourse
in Miami, Fair Grounds Racecourse in New Orleans, along with 11 OTBs in
Louisiana. CHDN also operates a
casino and hotel, Harlows Casino Resort & Hotel in Greenville, Mississippi
and numerous other casinos throughout the United States.
On March 12, Churchill reported
their 4th consecutive quarter of EPS beats, with earnings coming in
at $0.25, compared to estimates of -$0.08, good for a whopping 412% beat! Revenues came in slightly lighter at
$149M, missing estimates by about $2M.
This recent beat caused the stock to rally about 8% the next day, and
while the stock is now trading higher, I still want you in before the big race
in May. CHDN currently trades at
19 times forward earnings, which is a discount to the industry average of
22x. The company has a PEG ratio
of 2.89, while high, is worth every penny. Churchill carries about $27M in cash and has $133M in debt,
equaling almost $2/share in cash.
CHDN pays out a small, yet important 1.20% dividend, paying out only 16%
of income, giving it plenty of room to raise the payout. This stock is not heavily covered by
analysts, but does have 3 strong buys and 1 buy with an average price target of
$67.75, a 15% increase from its close on Wednesday.
Technically, the stock looks very
strong, having gapped up on Tuesday and traded relatively flat on Wednesday,
it’s currently sitting just $1.00 off it’s all-time high. Since reporting earnings, CHDN never
fell below the 50 day moving average, which sits at $55.70. That’s the level I would use as my
downside risk. Drawing an uptrend
line off the 52 week low of $36.67, you can see that Churchill trades significantly
above that line that comes into play today at $52.50.
Full
disclosure: I currently hold no
positions in Churchill Downs.
Jeff Lewison
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