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Will Churchill Downs’ Stock Continue To Trend Higher?

Churchill Downs’ stock (NASDAQ: CHDN) has rallied 122% over recent months (vs. about a 50% gain in the S&P 500) to its current level of $163 after falling to a low of $73 in late March as a rapid increase in the number Covid-19 cases outside China resulted in heightened fears of an imminent global economic downturn. The stock has completely recovered to the levels observed before the market crash in March and we believe that further upside in the stock seems unlikely. Our interactive dashboard compares Churchill Downs’ stock performance during the current crisis with that during the 2008 recession and highlights the recovery time-frame alongside the broader market.

How Did Churchill Downs Stock Fare During The 2008 Downturn And What Does It Mean For The Stock This Time Around?

We see CHDN stock declined from levels of around $14.49 in October 2008 (the pre-crisis peak) to roughly $9 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 41% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

However, CHDN recovered post crisis to about $11.44 in early 2010 – rising by 25% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

In 2020, CHDN stock lost 55% of its value between the market peak on February 19 to the low on March 23, and has already recovered since then. Keeping in mind the trajectory over 2009-10, this suggests that the stock has low upside potential as weak economic conditions are expected to remain for a couple of quarters.

Is There A Downside To This Recovery?

The rally across many industries over recent months can primarily be attributed to the Fed stimulus which put investor concerns about the near-term survival of companies to rest. The gradual lifting of lockdowns globally has also helped the demand for some non-essential goods recover. However, the rising number of coronavirus cases has led many states to postpone re-opening plans and many have again imposed restriction measures. Considering the quick recovery in Churchill Downs’ stock despite a 60% (y-o-y) decline in second quarter revenues, we believe that the stock could observe a correction as economic conditions continue to remain weak.

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