Why Churchill Downs Stock Plummets Amid Earnings Miss and Economic Headwinds

Churchill Downs (CHDN) shares plunged 14.49% in after-hours trading on April 25, 2025, marking one of the stock’s most severe drops in years. The selloff followed the company’s first-quarter earnings miss and revelations of paused capital projects, exposing vulnerabilities to macroeconomic pressures and regulatory uncertainty. Below, we dissect the factors driving the decline and assess whether this is a buying opportunity or a warning sign for long-term investors.

The Earnings Miss: A Missed Target and a Missed Signal

Churchill Downs reported Q1 2025 earnings of $1.02 per share, falling short of analysts’ expectations of $1.11. Revenue totaled $642.6 million, missing the $649.7 million consensus by 1.1%. While the company highlighted “record first-quarter net revenue” and $245 million in adjusted EBITDA, investors focused on the gap between guidance and execution.

The current ratio of 0.57x—meaning short-term liabilities exceed liquid assets—raised alarms about liquidity, prompting the company to pause a $900 million racetrack renovation project. This decision, framed as a “deliberate response to economic discipline,” signaled caution in an environment of rising construction costs tied to global tariffs and trade disputes.

Macroeconomic Pressures and Regulatory Risks

The earnings call revealed that executives are bracing for a slowdown in lower-tier (unrated) consumer spending at casinos, a critical revenue driver. While high-end gaming remained stable, the broader economic climate—marked by inflation and trade policy volatility—has dampened discretionary spending.

CEO Bill Carstanjen noted that rising material costs due to tariffs and supply chain disruptions forced the pause on the multiyear renovation. The $1 billion project, which included redeveloping The Skye, Conservatory, and Infield areas, now hinges on “economic stability.” This delay not only postpones potential revenue streams but also underscores the fragility of long-term capital plans in a turbulent global economy.

Dividends and Buybacks: A Lifeline or a Distraction?

Despite the challenges, Churchill Downs maintained its 51-year dividend streak, distributing $120 million in Q1 through dividends and share repurchases. The company’s $234 million in free cash flow provided a buffer, but investors questioned whether this prioritization of returns over growth could backfire if liquidity tightens further.

The stock’s beta of 0.86—lower than the broader market—suggests it has historically been a defensive holding. Yet, the recent decline has pushed CHDN to near its 52-week low of $89.47, raising concerns about investor sentiment.

The Kentucky Derby Outlook: A Bright Spot in a Dark Quarter?

Executives expressed confidence in the 151st Kentucky Derby, projecting results “comparable to last year’s historic performance.” The Starting Gate Pavilion, completed on budget, and strategic renovations like the Finish Line Suites (targeting high-end hospitality) aim to sustain premium revenue streams.

However, the pause on larger projects, such as The Skye and Infield upgrades, clouds the long-term appeal of Churchill Downs as a destination. While the Derby itself remains unaffected, the lack of progress on infrastructure could hinder future growth.

Valuation and the Bottom Line

Churchill Downs’ Piotroski Score of 8/10 reflects strong fundamentals, including robust EBITDA and manageable debt. The company projects net leverage to decline to 3.6–3.8x by 2026, from 4x in 2025, signaling improved balance sheet health.

Yet, the stock’s drop to $89.81—its lowest point in over a year—suggests investors are pricing in near-term risks. The question is: Are these risks temporary, or do they hint at deeper structural challenges?

Conclusion: A Short-Term Sell-Off or a Structural Warning?

Churchill Downs’ stumble on April 25 is best viewed as a market overreaction to macroeconomic fears, not a fundamental collapse. The company’s dividend discipline, record revenue, and focus on high-return projects (e.g., Finish Line Suites) suggest resilience. However, the pause on the $900 million project and the weak current ratio highlight vulnerabilities in an uncertain economic climate.

Investors should weigh two critical factors:
1. Economic Stability: If global trade policies and inflation stabilize, the paused projects could resume, unlocking upside.
2. Consumer Spending: The rebound in unrated play and regional gaming will be key metrics to watch.

For now, CHDN trades at 9.5x trailing EBITDA, a discount to peers. While the near-term outlook is cloudy, the company’s strong cash flow and iconic brand position it to weather the storm. This drop may present a buying opportunity for investors with a 2–3 year horizon, provided macro risks abate.

In the words of Churchill’s CFO, Marcia Dahl: “We’re in control of what we can control.” The market’s job is to decide whether that’s enough.