If there is a CEO who can best, and most eloquently, describe his company and its strategies, it is Bill Carstanjen of Churchill Downs.
And if there is a company with a clear and sound growth strategy, it is Churchill Downs.
Both were on display on the company’s second quarter earnings conference call.
Churchill Downs stock has been hot for several years as investors discovered a small, Kentucky horse racing company that had transformed beyond being known primarily for its Kentucky Derby into a growth enterprise built largely on a new phenomenon—slot machines pooled in pari-mutuel fashion whose game outcomes are based on databases of historically run horse races. That has allowed courts to declare so-called historical horse racing to be legal gambling in pari-mutuel states.
Churchill Downs has essentially a two-part growth strategy: continue to build the Kentucky Derby franchise making it immensely profitable and erect similarly profitable historical horse racing machine casinos in Kentucky, more recently Virginia and now starting in New Hampshire. There are other elements such as the online horse racing site TwinSpires.com, but HRMs, as they are called, and the Derby are the big ones.
As mentioned, investors have discovered this growth story and the stock has tripled over the past several years.
However, Churchill Downs hit a speed bump in the second quarter as earnings came in lighter than expected. Much of that was because of one-time events, such as losing racing dates in Canada to that nation’s wildfires and closing races at Churchill Downs for three weeks while the company thoroughly investigated the causes for a spate of equine deaths.
But some of it was because of uneven performance in regional markets where investors fear that consumers may be pulling back spending because of economic concerns.
The result: the stock sold off nearly 10 percent.
That is where Carstanjen and his call come in.
On the call, Carstanjen detailed the continued growth plans clearly and in detail. They comprise “projects that make sense in any kind of economy” and that will “deliver a lot of growth over the next few years,” he said.
“Indeed”, he said, they have created a “time of extreme optimism and a time of execution” for the company. The job, he said, is to “execute, execute, execute.”
There are “opportunities in times like this, even if others…are showing reticence,” Carstanjen said.
Those opportunities include building out the HRM network, building TwinSpires.com in a world where online sports betting continues to proliferate and continuing to build the venerable Derby franchise.
And the opportunities are not small or just for the next year or two. One of them, as an example, is to transform the Derby into a global money-maker, which will happen over a period of years.
Interestingly, Churchill Downs stock, even though it has tripled over time, is not highly priced compared to its growth rate, and that doesn’t include the farther-reaching developments that will occur.
There is not enough space here to outline the entire story, but, as mentioned, Carstanjen does that eloquently in the investor call. It’s worth visiting the company website to take a listen to the replay.
