Churchill Downs (NASDAQ: CHDN) shares are down 23.40% year‑to‑date, and analysts say part of that slide stems from developments in Virginia, one of the company’s most important markets. State lawmakers recently passed two gaming‑expansion bills, raising competitive pressures for Churchill Downs’ historical racing machine (HRM) operations. Even so, at least one analyst argues the stock remains undervalued.
Analyst: Headwinds Are Real, But CHDN Still Attractive
In a new report, Stifel analyst Jeffrey Stantial acknowledged the challenges posed by Virginia’s skill‑games legislation and the Fairfax County casino bill. The skill‑games measure introduces a new competitive category that could pressure HRM revenues, where Churchill Downs is a dominant operator.
Stantial noted key restrictions in the bill:
- 35,000 total machines statewide (vs. an estimated 90,000 before the 2023 ban)
- Four machines per location (seven for truck stops, two for charitable venues)
- 25% tax rate plus $800 per machine per month
- $5 max bet per spin
- Localities may ban machines via referendum
Despite these headwinds, Stantial reiterated a “buy” rating and a $136 price target, implying 57% upside from current levels.
Churchill Downs, MGM Expected to Oppose Fairfax County Casino
Governor Abigail Spanberger has 30 days to sign the Fairfax County casino bill, though she has previously opposed gaming expansion until the state creates a unified regulatory structure.
A casino in Tysons Corner would face strong resistance from both Churchill Downs and MGM Resorts International:
- Churchill’s $460 million The Rose Dumfries project is only 30 minutes from the proposed site.
- MGM National Harbor, one of the highest‑grossing regional casinos in the U.S., is just 20 minutes away.
Stantial expects both companies to lobby aggressively against the bill:
“Prior polling indicates more than 60% local opposition. If the referendum fails, it triggers a three‑year cooling‑off period, meaning new legislation would be required before 2029.”
He added that while voter approval appears unlikely, delays at the county level could keep the issue alive for years.
Bright Spots for Churchill Downs
Not all recent developments in Virginia are negative for the operator. The state deferred iGaming legislation, which Churchill Downs opposes, making the delay a net positive for the company.
Looking ahead, Stantial argues Churchill Downs remains one of the strongest growth stories in the gaming industry, citing:
- Strategic, high‑return acquisitions
- A robust pipeline of expansion projects
- Strong positioning heading into the Kentucky Derby
- A growing ecosystem across live racing, HRMs, and online wagering
He concludes:
“While horse racing viewership faces long‑term challenges, high‑growth online sports betting operators may expand the total addressable market. Churchill Downs continues to build a unique moat as the market leader in live, historical, and online horse racing. The valuation is high relative to peers, but justified given its growth drivers.”
Stantial maintains a Buy rating on the stock.
