Churchill Downs (CHDN)

Racing, gaming, and entertainment company Churchill Downs (NASDAQ:CHDN) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 8.7% year on year to $683 million. Its non-GAAP profit of $1.09 per share was 10.9% above analysts’ consensus estimates.

Company Overview

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Gaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.

Competitors in the gaming and horse racing industry include MGM Resorts (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and PENN Entertainment (NASDAQ:PENN).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Churchill Downs’s 22.2% annualized revenue growth over the last five years was impressive. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Churchill Downs’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 10.1% over the last two years was well below its five-year trend.

Churchill Downs also breaks out the revenue for its three most important segments: Horse Racing, Gaming, and TwinSpires, which are 43.9%, 38.8%, and 17.3% of revenue. Over the last two years, Churchill Downs’s revenues in all three segments increased. Its Horse Racing revenue (live and historical) averaged year-on-year growth of 17.2% while its Gaming (casino games) and TwinSpires (horse racing subsidiary) revenues averaged 5.4% and 5.5%.

This quarter, Churchill Downs reported year-on-year revenue growth of 8.7%, and its $683 million of revenue exceeded Wall Street’s estimates by 1.2%.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Churchill Downs’s operating margin has shrunk over the last 12 months, but it still averaged 24.8% over the last two years, elite for a consumer discretionary business. This shows it’s an well-run company with an efficient cost structure, and its top-notch historical revenue growth also suggests its margin dropped because it ramped up investments to capture market share. We’ll keep a close eye to see if this strategy pays off.

This quarter, Churchill Downs generated an operating margin profit margin of 14.3%, down 5.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Churchill Downs’s EPS grew at an astounding 61.4% compounded annual growth rate over the last five years, higher than its 22.2% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Churchill Downs reported adjusted EPS of $1.09, up from $0.97 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Churchill Downs’s full-year EPS of $6.18 to grow 9.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Churchill Downs has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.8% over the last two years, slightly better than the broader consumer discretionary sector.

Churchill Downs’s free cash flow clocked in at $127.9 million in Q3, equivalent to a 18.7% margin. This result was good as its margin was 11.8 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Churchill Downs historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Churchill Downs’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Churchill Downs reported $180.5 million of cash and $5.11 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.19 billion of EBITDA over the last 12 months, we view Churchill Downs’s 4.1× net-debt-to-EBITDA ratio as safe. We also see its $294.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Churchill Downs beat analysts’ EPS expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its . Overall, this print had some key positives. The stock traded up 1.7% to $98.10 immediately after reporting.

Updated: December 3, 2025 at 9:57 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We cheer for all companies serving everyday consumers, but in the case of Churchill Downs, we’ll be cheering from the sidelines. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Churchill Downs’s P/E ratio based on the next 12 months is 17.8x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $135.17 on the company (compared to the current share price of $111.61).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.