Churchill Downs Incorporated CHDN is likely to benefit from Kentucky Derby enhancements and strategic investments in Historical Racing Machines (HRM) technology. Also, a focus on enhancing shareholder value bodes well. However, regional gaming consumer softness and increased competition are a concern.

Growth Drivers for CHDN Stock

A key driver of CHDN’s growth strategy is its flagship Kentucky Derby. Significant renovation projects at Churchill Downs Racetrack promise to enhance the Derby experience and boost revenue potential. The Starting Gate Pavilion Project will replace bleacher seats with 8,500 premium stadium and trackside box seats, coupled with upgraded amenities for thousands of additional guests. Beyond this, the company plans to redevelop seating and hospitality sections along the racetrack, increasing premium seating inventory by 20% (through 2028). These projects are poised to elevate the Derby’s appeal and diversify revenue streams through enhanced hospitality offerings at various price points.

In addition to the Derby, the company is heavily investing in its high-margin HRM business, which continues to drive impressive growth. By the end of 2025, CHDN expects to reach the 5,000-machine legal cap in Virginia. In Kentucky, the company is on track to open new HRM venues in Owensboro and Calvert City, featuring state-of-the-art amenities and offerings. These strategic investments in HRMs, paired with thoroughbred racing operations, will likely provide CHDN with sustainable revenue streams in supportive regulatory environments.

CHDN’s financial discipline and shareholder-friendly policies further solidify its appeal. The company announced a 7% increase in its dividend, marking the 14th consecutive year of growth. Free cash flow reached a record $591 million in the first nine months of 2024, up 32% from the previous year, reflecting strong operational performance. CHDN’s robust reinvestment strategy in growth projects is balanced by its commitment to reducing leverage, with a significant decline expected in 2025.

Churchill Downs’ Concerns

Image Source: Zacks Investment Research

Shares of Churchill Downs have declined 6% in the past six months, against the industry’s 11.3% growth. The downside can be attributed to regional gaming consumer softness and increased competition.

CHDN’s reliance on capital-intensive projects carries inherent risks. The company has committed to large-scale renovations at Churchill Downs Racetrack, including the Starting Gate Pavilion Project and premium seating expansions, slated to be completed by 2028. While these developments aim to enhance the guest experience, the financial outlay required is substantial, with project capital expected to reach $250 million to $325 million in 2025 alone. If these projects face delays, cost overruns, or fail to attract the expected demand for premium offerings, the company’s profitability could suffer.

CHDN’s Zacks Rank & Stocks to Consider

Churchill Downs currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are:

Norwegian Cruise Line Holdings Ltd. NCLH currently sports a Zacks Rank #1 (Strong Buy). NCLH delivered a trailing four-quarter earnings surprise of 4.2%, on average. The stock has surged 46.9% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.

The Zacks Consensus Estimate for NCLH’s 2025 sales and earnings per share (EPS) indicates growth of 8.3% and 25%, respectively, from the year-ago levels.

The Marcus Corporation MCS currently sports a Zacks Rank #1. MCS has a trailing four-quarter earnings surprise of negative 131.6%, on average. The stock has surged 89.6% in the past six months.

The Zacks Consensus Estimate for MCS’ 2025 sales and EPS indicates growth of 6.6% and 334.8%, respectively, from the year-ago levels.

Royal Caribbean Cruises Ltd. RCL currently carries a Zacks Rank #2 (Buy). RCL delivered a trailing four-quarter earnings surprise of 16.2%, on average. The stock has surged 92.5% in the past year.

The Zacks Consensus Estimate for RCL’s 2025 sales and EPS indicates growth of 9.5% and 23.8%, respectively, from the year-ago levels.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

Marcus Corporation (The) (MCS) : Free Stock Analysis Report

Churchill Downs, Incorporated (CHDN) : Free Stock Analysis Report

Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research