Churchill Downs, Inc. released its 2015 report of operating results (SEC form 10K) at the end of February. At the close of 2015, Churchill Downs (Nasdaq symbol CHDN) did business in six commercial segments, as follows:

Casinos (“8,500 gaming positions in six states”)

Big Fish Games (“a global producer and distributor of social casino…games for PC, MAC, and mobile devices”)



Other (for example, United Tote systems for pari-mutuel wagering).

Corporate (miscellaneous)

The racing business segment encompassed four Thoroughbred racetracks: Arlington International Race Course in Illinois, Calder Race Course in Florida (the racing component is operated by the Stronach Group), Churchill Downs in Kentucky, and Fair Grounds Race Course in Louisiana. In addition, CHDN held a 25% equity position in Saratoga Casino Holdings, which owns Saratoga Casino and Racing in New York offering Standardbred racing. CHDN has a 50% equity investment in Miami Valley Gaming in Ohio, a Standardbred racino. CHDN owns 10 off-track-betting facilities in Illinois and 12 in Lousiana.

The TwinSpires business segment is CHDN’s advance deposit wagering operation. It is the largest of its kind in the United States.

CHDN had steadily declining revenues in 2011, 2012, 2013 and 2014. In 2015, CHDN revenues improved over a year earlier, with revenue of over $1.2 billion in 2015 compared to $812 million in 2014. Net income was $65 million in 2015 and $46 million in 2014 and earnings per share were, respectively, $3.71 and $2.64.

CHDN’s stock price was $94.25 on January 2, 2015 and $141.49 at the close of the year for an increase of 50% in a year in which the Nasdaq Composite rose by about six percent. This is unusual in that CHDN normally moves in concert with the Nasdaq index (i.e., CHDN has a beta of .93). CHDN’s free cash flow grew in 2015 to $233.5 million from $118.9 million in 2014, positioning it for investments in organic growth, small acquisitions, or an increase in the dividend.

At a price-to-earnings multiple of nearly 40, a dividend yield of less than one percent, and a recently soaring stock price, CHDN equity looks pricey.

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