In a precedent-setting move, the Supreme Court of Virginia recently decreed that skill games hold no shelter under the aegis of the First Amendment, effectively banning them yet again within state bounds. This potentially paves way for Churchill Downs (NASDAQ: CHDN), a popular bet in the gaming industry, to reap future advantages.
According to Truist Securities analyst Barry Jonas, Virginia’s re-imposition on the prohibition of skill games represents a ground-breaking victory for Churchill Downs. He foresaw this decision coming, mirrored four months prior when Kentucky devised a similar decree. Indeed, Jonas applauds Churchill Downs’ astute political foresight.
At present, the gaming league boasts of 2,750 historical horse racing machines within Virginia, and it envisages expanding this number to 5,000. Contrarily, had the 9,000 skilful game machines been allowed to persist, Churchill’s revenue prospects from HHR would have dampened substantially.
Virginia’s apex court ruling to re-establish the ban on skill game contraptions is a critical juncture for Churchill Downs, especially with respect to its expansion plans in the Old Dominion. It must be noted that while many investors promptly associate the company with horse racing and its distinguished race track in its native state of Kentucky, Virginia is burgeoning as a new territory for Churchill Downs’ growth.
Such growth is possibly catalyzed by Virginia’s influence at the state level. The company is already making noticeable inroads, with a 50% stake in a Richmond casino project and numerous HHR locales sprouting across the state. Anticipations run high regarding the prospective gaming venue, which is projected to house 1,800 slot machines, 100 table games, and a sportsbook.
The Rosie’s 777 Gaming Emporiums chain, seven in total, marks Churchill’s existing presence in Virginia. Coupled with this is the proposed addition of the Rose Gaming Resort in Dumfries.
Jonas opines that in the aftermath of the Supreme Court’s ruling against the lower-court’s dissent, skill-based firms are left with little margin for retaliation. He predicts a rather immediate, beneficial impact on CHDN’s Virginia properties once the ban is enforced.
As for Wall Street’s opinion on Churchill Downs, it remains a favored proposition, with the company’s stock ratcheting up a modest 6.60% year-to-date. The underlying optimism can be traced back to Virginia, whose potential to turbocharge the company’s growth aspirations is appreciable.
Capital One Securities analyst Dan Guglielmo, in a recent interaction with his clients, stated, “Churchill Downs has approximately $1.1B in development spend budgeted for the upcoming one and a half years. They aim to up the stakes in the portfolio of slots/historical racing machines by 21%, table games by 9%, and rooms by 25% into 2025.”
Guglielmo also initiated their coverage of Churchill Downs with an “overweight” rating and a $144 target price, hinting at the company’s stand-out prospects in the casino fraternity. This proposed price target suggests an upside of 27.7% from the Oct. 16 market price close.
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