Why Churchill Downs (CHDN) Is a Strategic Buy at a Discounted Valuation

Churchill Downs Incorporated (CHDN), a titan in the global horse racing and gaming industry, presents a compelling case for undervaluation amid robust earnings growth and a fortress of intangible assets. While its price-to-earnings (P/E) ratio of 20.37 as of December 4, 2025, appears elevated relative to the broader market's 39.21 average according to MarketBeat, it remains 18% below the company's 10-year historical P/E of 25.05 per Full Ratio. This discrepancy, coupled with a price-to-book (P/B) ratio of 7.85-significantly higher than industry peers-suggests the market is underappreciating CHDN's long-term value proposition.

A Valuation at Odds with Historical Trends

The company's current P/E ratio, though slightly above the industry average of 20.87 according to Marketscreener, reflects a discount to its own historical benchmarks. Analysts project a contraction in the 2026 P/E to 14.6x, driven by anticipated earnings growth of 13.87% to $7.88 per share as reported by StockInvest. This implies that CHDN's valuation is poised to expand as earnings outpace expectations, creating a margin of safety for investors. For context, the stock's 3.28% premarket surge following Q3 2025 results-when it reported $1.09 in EPS, surpassing forecasts by 12.37%-demonstrates market confidence in its operational resilience.

Intangible Assets: The Hidden Engine of Value

CHDN's intangible assets, including its iconic Kentucky Derby brand and exclusive racing rights, are critical to its competitive moat. The company's Live and Historical Racing segment, for instance, saw a 21% revenue increase and 25% adjusted EBITDA growth in Q3 2025, underscoring the enduring appeal of its intellectual property. Despite economic headwinds prompting the suspension of capital projects like The Skye and Conservatory as disclosed in filings, CHDN's annual impairment tests for goodwill and indefinite-lived intangibles-as of April 1, 2025-reveal a disciplined approach to asset management as detailed in SEC filings. These tests, while sensitive to macroeconomic shifts, affirm the durability of CHDN's brand equity in a sector where reputation is currency.

Earnings Momentum and Strategic Leverage

The company's forward-looking strategy further strengthens its case for undervaluation. With a target to reduce net leverage below 4x by 2026 and a 20% unlevered internal rate of return (IRR) for its Victory Run project as noted in earnings, CHDN is positioning itself for capital-efficient growth. Analysts' consensus EPS forecast of $5.69 for fiscal 2025 according to Nasdaq, combined with retained earnings of $683 million as of September 30, 2025 per StockInvest, highlights its financial flexibility. This liquidity buffer, coupled with a projected 13.87% earnings growth rate, suggests CHDN is well-placed to navigate volatility while rewarding shareholders through dividends or buybacks.

Conclusion: A Discounted Opportunity

Churchill Downs' valuation metrics, while seemingly mixed, tell a story of a company undervalued by its P/E ratio and overvalued by its P/B ratio-a paradox that favors long-term investors. The market's skepticism toward its high P/B may stem from a narrow focus on book value, which fails to capture the premium commanded by its intangible assets. As earnings estimates climb and the company executes on its deleveraging and growth initiatives, CHDN's current valuation offers a compelling entry point for those willing to bet on its enduring legacy.