Churchill Downs (CHDN): quality at the horse races
2026-07-07 · By Lubin Danilo, founder of Lubin Investment
CHDN: see the full analysis on Lubin Investment
Churchill Downs, the company running the Kentucky Derby and operating horse race betting and casinos across the US, passes 9 of the 10 criteria in my screener. The stock trades at roughly 7.7 times its free cash flow, a modest valuation for such a profitable company. It reports earnings on July 29.
Key takeaways
- Churchill Downs passes 9 of the 10 criteria in my screener, and reports Q2 2026 earnings on July 29.
- The stock trades at roughly 7.7 times its free cash flow, a modest valuation compared with most quality companies I track.
- Sales grow 17.5% a year on average over 5 years, a rare pace for a century-old business.
- The weak spot: high net debt (6 years of cash flow), tied to investment in its betting and casino properties.
What Churchill Downs does
Churchill Downs owns and operates the racetrack of the same name in Louisville, Kentucky, home to the Kentucky Derby, one of the most watched horse races in the world. Beyond that flagship event, the company runs year-round horse and sports betting, plus a network of regional casinos, a model that diversifies revenue well beyond a single race weekend a year.
Rare growth for a century-old business
The Kentucky Derby has existed since 1875, but the company isn't coasting on its legacy: sales grow 17.5% a year on average over the past five years, driven by expansion of its casino network and the legalization of sports betting in more and more US states. Net margin comes in at 13.2%, and conversion of accounting profit into real cash is particularly strong (a ratio of 2.02, meaning the company generates even more cash than its accounting profit suggests, often a sign of heavy depreciation charges on already largely written-down assets).
Why the stock doesn't look expensive
At a P/FCF of roughly 7.7, Churchill Downs trades notably cheaper than most comparable quality companies I track. My reasonable buy price estimate, based on conservative assumptions, actually exceeds the current share price of $86.23, suggesting the market hasn't fully recognized the quality of this growth yet. I remain cautious about the exact size of that gap, though: in a betting-related, regulation-sensitive business, a discount can also rationally reflect regulatory risk being priced in.
The weak spot: debt
Net debt represents roughly 6 years of free cash flow, a high level reflecting ongoing investment in building and renovating betting and casino properties. It's the only financial criterion Churchill Downs fails in my screener, worth watching closely if interest rates stayed elevated or growth slowed faster than expected.
The moat: a unique license and a century-old brand
Churchill Downs' moat starts with the exclusivity of its brand: there is only one Kentucky Derby, and the event generates media exposure and revenue no one else can replicate. Across its other businesses (betting, casinos), the moat comes from gaming licenses that are hard to obtain and already-established local properties.
What to watch on July 29
Beyond quarterly earnings, I'll watch sports betting growth in newly legalized states, as well as net debt trends: stabilizing debt while sustaining current growth would strengthen the case for a company investing wisely rather than piling on debt without discipline.
What I take away from this
Churchill Downs combines rare growth, an irreplaceable brand, and a valuation that's nothing extreme, a combination rare enough to deserve a closer look. The one real caveat, debt, is structural to the business rather than a sign of reckless management, but it warrants keeping an eye on its trend before jumping to the conclusion that this is an overlooked gem.
FAQ
When does Churchill Downs report earnings?
On July 29, 2026, after market close.
Is Churchill Downs just the Kentucky Derby?
No, the company also runs year-round horse and sports betting plus a network of regional casinos, diversifying revenue well beyond a single annual event.
Why does Churchill Downs trade so cheap?
The stock trades at roughly 7.7 times its free cash flow, a modest level that could reflect either an opportunity the market hasn't fully recognized yet, or rational caution tied to regulatory risk in the betting sector.
What is the main risk for Churchill Downs?
Its high net debt (roughly 6 years of cash flow), tied to ongoing investment in its betting and casino properties, the only criterion in my screener the company fails.
What protects Churchill Downs from competition?
The exclusivity of the Kentucky Derby brand, impossible to replicate, and gaming licenses that are hard to obtain for its betting and casino businesses.
CHDN: see the full analysis on Lubin Investment
About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).