Churchill Downs

Churchill Downs Inc earns a 5-star quantitative star rating, reflecting our opinion that this share class offers a compelling opportunity for investors. The stock currently trades at a 25% discount to our quantitative fair value estimate of $103.24 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's profitability bolsters our valuation estimate. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. For example, the firm's earnings yield of 8.8% sits in the top 30% compared with global peers. This suggests that it is generating substantial earnings relative to its share price, which contributes to our view that shares are undervalued.

The company's valuation metrics are an additional encouraging factor. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 8.0, for example, lies in the bottom 30% compared with global peers. Relative to the company's EBITDA, the enterprise value of the business is low, which further promotes our favorable price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has been a laggard relative to the broader universe over the past year. This underperformance makes the stock appear cheap, which portends a buying opportunity in light of other contributors to our model.

The narrow moat rating for this company indicates investors can expect it to generate 10 years or more of excess returns on capital due to its respectable competitive advantages. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.