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Run for the Roses: Breakout Experts Buys Churchill Downs

06/13/2019 5:00 am EST

Focus: STRATEGIES

Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

With annual revenues around $1 billion, Churchill Downs (CHDN), based in Louisville, Ky., operates race tracks and casinos, notes Leo Fasciocco, breakout specialist and editor of Ticker Tape Digest.

Churchill Downs operates casinos in seven states and has a mobile and online platform for betting on horse racing in the U.S. It has four racetracks: Churchill Downs Racetrack, Arlington International Race Course, Fair Grounds Race Course and Calder Race Course.

Its TwinSpires operates mobile and online wagering It is a platform for betting on horse racing. It also has United Tote and Capital View Casino & Resort Joint Venture.

The stock recently surged higher, breaking out from its 6-week, cup-and-handle base. The move carries the stock to a new all-time high. That is bullish.

The stock formed a cup and handle base and broke out in April, but then faded back. The stock regrouped and formed a flat base.

The recent breakout comes with a widening of the daily spread and expanding volume. That is bullish. The stock's momentum indicator is also strongly bullish. CHDN also had a 3-for-1 stock split earlier this year.

This year, analysts are forecasting a 21% gain in net to $4.40 a share from the $3.64 the year before. The stock sells with a price-earnings ratio of 24. We see that as reasonable.

Quarterly earnings growth will show an acceleration. Net for the second quarter is expected to rise 18% to $3.03 a share from the $2.57 the year before. The highest estimate on the Street is at $3.20 a share.

We see good chances for an upside earnings surprise. The company beat the consensus the past five quarters. Net for the third quarter is expected to surge 70% to 90 cents a share from the 53 cents the year before.

Going out to 2020, the Street predicts a 15% gain in net to $5.08 a share from the anticipated $4.40 this year. We are targeting the stock for a run to $134 per share within the next few months, or sooner. A protective stop can be placed near the $101 level.

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