Breaking Down Churchill Downs Incorporated (CHDN) Financial Health: Key Insights for Investors

You might look at Churchill Downs Incorporated's (CHDN) recent Q3 2025 report and see a headline number-record net revenue of $683.0 million and Adjusted EBITDA hitting $262.3 million-and think the growth story is simple, but honestly, you need to look closer at the balance sheet and the one-time hits. The company's strategic expansion into Historical Racing Machines (HRM) and the $180 million acquisition of 90% of Casino Salem are clearly driving top-line growth, helping push the full-year revenue estimate toward $2.91 billion. Still, the GAAP net income fell 42% to $38.1 million due to a $31.0 million after-tax impairment charge, and the net bank leverage stands at a high 4.1x, which is something you defintely can't ignore in a rising rate environment. We need to map out if the $53.5 million in Q3 share repurchases is a sign of confidence or a necessary action to support a stock sitting on a leveraged foundation. The simple truth is, the operational machine is humming, but the financial structure has some near-term risks we need to dissect before you make your next move.

Revenue Analysis

You need to know where the money is actually coming from at Churchill Downs Incorporated (CHDN), and the answer is increasingly clear: it's the machines, not just the horses. For the trailing twelve months (TTM) ending September 30, 2025, the company generated $2.884 billion in total revenue, marking a solid 7.97% year-over-year growth. That growth is defintely not flat, but it's also not a rocket ship, which is typical for a mature, capital-intensive business like this.

The primary revenue streams are split across three core segments, but the biggest growth engine right now is the 'Live and Historical Racing' division. This segment, which includes the iconic Kentucky Derby but is heavily weighted toward Historical Racing Machines (HRMs), is the core of the business. The second quarter of 2025 (Q2 2025) alone saw record net revenue of $934.4 million, which was a 5% increase from the prior year, largely powered by the 151st Kentucky Derby. Betting on the Derby race itself totaled $234.4 million, up 11% from the previous year.

Here's the quick math on how the segments contributed to the first half of 2025, which helps map the company's financial priorities:

The Live and Historical Racing segment is the clear revenue leader, contributing $540.9 million in Q2 2025 alone. The growth story here is all about expansion, particularly in Virginia and Kentucky. New venues like The Rose Gaming Resort, which opened in Northern Virginia in late 2024, and Owensboro Racing and Gaming, which launched in Kentucky in February 2025, are driving significant incremental revenue. For instance, the Virginia HRM venues contributed a $23.8 million increase in Q2 2025.

You also need to watch the shifts in the Gaming segment. The company has been actively reshaping its footprint, and that means some revenue streams are drying up while new ones are starting. The cessation of Historical Racing Machine operations in Louisiana, due to legal rulings, caused a slight revenue decrease of $4.8 million in the Gaming segment during Q3 2025. This is a strategic pivot, as they are relocating those HRMs to more favorable markets, primarily Virginia, to mitigate the impact. It's a classic case of moving capital to where the return is higher. You can dig deeper into the ownership structure behind these moves here: Exploring Churchill Downs Incorporated (CHDN) Investor Profile: Who's Buying and Why?

The Wagering Services and Solutions segment, which includes the TwinSpires online platform, is also seeing growth, but it's more modest. The segment's Q3 2025 revenue increased by $8.5 million, primarily from TwinSpires Horse Racing and the benefit of incremental HRMs in Virginia and New Hampshire through the Exacta business. This segment is a steady, digital complement to the physical venues. The key takeaway is that the company's revenue engine is now firmly tied to the expansion of its land-based Historical Racing Machine footprint, which provides a more predictable, year-round revenue stream than the seasonal racing calendar.

• Live and Historical Racing is the top segment.
• HRM expansion in Virginia and Kentucky drives growth.
• Q3 2025 revenue was a record $683.0 million.
• Louisiana HRM exit caused a minor revenue dip.

Profitability Metrics

You need to know if Churchill Downs Incorporated (CHDN) is converting its record-breaking revenue into real profit, and the answer is yes, but with a few nuances you need to watch. The company's profitability is strong, driven by high-margin gaming expansion, but its overall margins are showing the pressure of a massive capital spending cycle.

Looking at the trailing twelve months (TTM) data as of late 2025, Churchill Downs Incorporated maintains a solid Gross Profit Margin of 33.5%. This is a healthy figure, showing the core business of racing and gaming is generating good revenue relative to the cost of goods sold. However, the TTM Operating Margin sits at 19.96%. Here's the quick math: that nearly 14-point drop between gross and operating margin reflects the substantial selling, general, and administrative (SG&A) expenses required to run a sprawling entertainment and gaming empire, plus the costs of their aggressive expansion.

The Net Profit Margin tells a more complex story. While the Q2 2025 quarter, which includes the Kentucky Derby, saw a high net margin of 23%, the overall TTM net margin is about 14%, down from 15.4% in the prior year. This recent dip is a trend to monitor. It defintely challenges the narrative of consistent high-quality growth, but analysts still expect this margin to climb back toward 16.9% over the next three years as new venues mature.

The company's margins look favorable when you step back and compare them to the industry. For instance, the company's net margin of 11.94% as of Q1 2025 was already noted to surpass industry standards. Also, the company's price-to-earnings (P/E) ratio of 17.9x is significantly below the peer group's 36.2x, suggesting the market is not fully pricing in the expected margin recovery and growth. You're getting a relative discount.

Operational efficiency is where the real story is, and it's a good one. The company's Live and Historical Racing segment, which is the engine of their growth, is performing exceptionally well. In Q3 2025, this segment grew revenue by 21% and Adjusted EBITDA (a proxy for operating profit) by an even better 25% compared to the prior year. This means their cost management-the operational discipline-is improving as their scale increases. Specifically, margins at their Kentucky Historical Racing Machine (HRM) properties collectively increased over three points in Q3 2025. They are using their new assets to drive operating leverage (better profit from each dollar of revenue). That's the kind of margin expansion you want to see. You can explore more about the ownership structure in Exploring Churchill Downs Incorporated (CHDN) Investor Profile: Who's Buying and Why?

• Gross Profit Margin (TTM): 33.5%
• Operating Margin (TTM): 19.96%
• Net Profit Margin (TTM): 14%

The key takeaway is that while the headline TTM net margin has softened slightly due to one-time costs and heavy investment, the underlying operational efficiency, particularly in the Live and Historical Racing segment, is accelerating. The segment-level margin expansion is a clear signal that the capital expenditures are paying off in real-time, which should translate to a higher consolidated net margin over the next few years.

Debt vs. Equity Structure

The core takeaway here is that Churchill Downs Incorporated (CHDN) operates with a highly debt-leveraged capital structure, a common but elevated strategy in the capital-intensive gaming industry. Your analysis should start with the fact that the company's debt-to-equity (D/E) ratio is significantly higher than its industry peers, reflecting a strong preference for debt financing to fuel its aggressive growth and share repurchase programs.

As of the third quarter of 2025, Churchill Downs Incorporated reported total debt of approximately $5.11 billion against total equity of about $1.03 billion. Here's the quick math: this translates to a Debt-to-Equity ratio of roughly 4.96. For context, the average D/E ratio for the broader Gambling industry is closer to 1.78, meaning Churchill Downs Incorporated is using nearly three times the debt relative to equity compared to the industry average.

• Total Debt (Q3 2025): $5.11 billion.
• Total Equity (Q3 2025): $1.03 billion.
• Debt-to-Equity Ratio: 4.96.

This high leverage is not accidental; it's a deliberate strategy to maximize returns on equity (ROE) by financing asset-heavy projects like new historical racing machines (HRMs) and casino acquisitions. The company's stated financial policy targets a bank-calculated net leverage of 3x-4x, but it has been willing to go higher for strategic investments. As of the end of Q3 2025, the company's net bank leverage was 4.1x, still sitting at the high end of, or slightly above, that target range. You need to watch this number defintely.

In terms of recent activity, Churchill Downs Incorporated has been active in managing its debt profile. In February 2025, the company closed an amendment to its Credit Agreement, which successfully reduced the interest rate on its Term Loan B-1, a smart move to lower its interest expense burden. However, the company's capital allocation decisions, including debt-financed share repurchases and the August 2025 acquisition of 90% of Casino Salem for $180 million, led to a credit rating change.

In October 2025, S&P Global lowered the company's issuer credit rating to 'BB-' from 'BB', specifically citing the expectation that debt leverage would remain above their 4x downgrade threshold through 2026. This is a clear signal from the rating agencies that the current balance of debt financing is tilting toward higher risk. The company's management balances this with equity funding primarily through retained earnings and by returning capital to shareholders via share repurchases, with a new $500 million program approved in July 2025, which further stresses the balance sheet but supports the stock price. If you want to dive deeper into the strategic rationale for this growth, you can review the Mission Statement, Vision, & Core Values of Churchill Downs Incorporated (CHDN).

Liquidity and Solvency

You're looking at Churchill Downs Incorporated (CHDN) and asking the right question: can they cover their near-term bills? Honestly, the balance sheet tells a story of tight short-term liquidity, but their cash flow from operations is a massive strength that smooths over the cracks.

For the quarter ending September 30, 2025, the company's liquidity ratios are low, which is typical for an asset-heavy, growth-focused business like this, but it's defintely something to watch. Their current assets were $414.9 million against current liabilities of $725.2 million.

• Current Ratio: The ratio of current assets to current liabilities sits at 0.57 (Current Assets $414.9M / Current Liabilities $725.2M). A ratio below 1.0 means current liabilities exceed current assets.
• Quick Ratio (Acid-Test Ratio): This ratio, which strips out less-liquid assets like inventory, is even tighter at approximately 0.50. Here's the quick math: Quick Assets (Cash & Equivalents of $252.7M plus Receivables of $113.2M) divided by Current Liabilities ($725.2M).

What this means is that Churchill Downs Incorporated (CHDN) has a negative working capital of -$310.3 million. They rely on a strong, predictable stream of operating cash flow to meet obligations, not a large stockpile of cash or inventory.

Cash Flow: The Real Liquidity Engine

The true measure of Churchill Downs Incorporated (CHDN)'s financial health isn't the static balance sheet ratios; it's the cash flow statement. Their core business is a cash-generating machine.

• Operating Cash Flow (OCF): For the most recent quarter, OCF was a robust $673.80 million. This is the lifeblood, showing the strong cash generation from their racing, gaming, and wagering segments.
• Investing Cash Flow (ICF): The company is in a heavy growth and capital expenditure (CapEx) phase. ICF was a net outflow of -$421.40 million, reflecting significant spending on new projects like the Casino Salem acquisition and various historical racing machine (HRM) venue expansions.
• Financing Cash Flow (FCF): This was also a net outflow of -$236.60 million, driven by share repurchases of $53.5 million and dividend payments. They are actively returning capital to shareholders while funding growth.

The company's ability to generate hundreds of millions in operating cash flow easily covers the working capital deficit and helps fund its aggressive expansion plans. Still, the high level of capital spending (CapEx) is a constant draw on that cash.

The risk here isn't an immediate bankruptcy; it's a reliance on the continuous, high-volume operation of their venues. Any major regulatory change or an economic downturn that hits consumer discretionary spending could quickly pressure that strong operating cash flow. For a deeper dive into the ownership structure and why large investors are comfortable with this leverage, check out Exploring Churchill Downs Incorporated (CHDN) Investor Profile: Who's Buying and Why?

Valuation Analysis

You're looking at Churchill Downs Incorporated (CHDN) right now, trying to figure out if the recent stock dip makes it a bargain or a warning sign. The direct takeaway is this: while the stock has taken a hit this year, analysts largely see it as undervalued based on future growth, assigning a consensus of Moderate Buy.

The company's valuation multiples are trading at a premium to some peers, but they are actually below the company's own historical average, which is a key signal. For example, the stock is currently trading at a trailing twelve-month (TTM) Price-to-Earnings (P/E) ratio of about 18.21x, which is a significant drop from its historical median.

Here's the quick math on the core valuation metrics as of November 2025:

• Price-to-Earnings (P/E): 18.21x
• Price-to-Book (P/B): 6.80x
• Enterprise Value-to-EBITDA (EV/EBITDA): 12.79x

The EV/EBITDA multiple of 12.79x is a bit higher than some regional gaming operators, but it reflects the growth in their Live and Historical Racing segment, which saw a 25% rise in adjusted EBITDA in Q3 2025. This is defintely a growth-oriented multiple, not a deep-value one. What this estimate hides is the high capital expenditure (CapEx) needed for their expansion projects, which can suppress near-term free cash flow.

The Wall Street consensus is clear: the stock is a Moderate Buy, with ten out of eleven analysts issuing a Buy rating. The average one-year price target sits at around $137.60, suggesting a solid upside from the recent closing price of $104.56 as of November 18, 2025.

Still, you need to be a realist about the price action. The stock has been highly volatile, declining by about 25.24% year-to-date in 2025. The 52-week range shows how choppy things have been, trading between a low of $85.58 and a high of $144.23. The market is clearly wrestling with growth potential versus execution risk.

On the income front, Churchill Downs Incorporated (CHDN) is not a high-yield play. The dividend yield is a modest 0.44%, with an annual dividend of $0.44 per share. The good news is the dividend is extremely safe, with a low payout ratio of just 7.92%, meaning they have plenty of room to reinvest in the business or increase the dividend down the road.

For a deeper dive into who is driving the institutional ownership and why, check out Exploring Churchill Downs Incorporated (CHDN) Investor Profile: Who's Buying and Why?

Next step: Dig into the Q3 2025 earnings call transcript to understand the management's commentary on the 2026 CapEx plan, as that will be the real driver of the EV/EBITDA multiple.

Risk Factors

You're looking at Churchill Downs Incorporated (CHDN) and seeing record-breaking revenue, but as a seasoned analyst, I focus on the cracks in the foundation, not just the facade. The direct takeaway is this: while CHDN is executing on its growth strategy-especially with Historical Racing Machines (HRMs)-its high debt load and reliance on the Kentucky Derby remain structural risks that demand close monitoring in your investment thesis.

The company is defintely a diversified operator, but its financial health is still tied to a few key areas. The most pressing risks are a combination of financial leverage, regulatory uncertainty, and concentration risk around its flagship event.

Financial and Strategic Risks: The Debt Load and Derby Dependency

The biggest financial elephant in the room is the debt. Churchill Downs Incorporated ended the third quarter of 2025 with a total debt burden of approximately $5.04 billion, translating to a net bank leverage ratio of 4.1x. That's a lot of leverage, and while their Adjusted EBITDA is growing (up 11% to $262.3 million in Q3 2025), a high leverage ratio can constrain capital for future growth or make them vulnerable to interest rate hikes.

Also, never forget the concentration risk of the Kentucky Derby. The Derby is a massive revenue driver, but it's a single, high-stakes event. Adverse factors, like severe weather or a major public relations crisis, could instantly impact results. In the first half of 2025, the company's overall results were already challenged by a high baseline from the anniversary Derby in 2024.

• High Leverage: Net Debt/Adj. EBITDA at 4.1x.
• Derby Concentration: Single-event risk from weather or external factors.
• Impairment Charges: Q3 2025 saw a $31.0 million after-tax impairment on gaming rights.

Operational and External Headwinds

On the operational side, the company is battling market saturation and macroeconomic pressures. In Q1 2025, management noted consumer softness and increased competition near some Historical Racing Machine (HRM) venues, which reduced unrated play. Plus, the gaming industry is a regulatory minefield. Churchill Downs Incorporated constantly faces risks related to maintaining agreements with industry constituents, like horsemen, and the evolution of gaming technology, such as the rollout of electronic table games.

Here's the quick math on capital: The company had a 2025 capital expenditure forecast between $350 million and $400 million, but they temporarily paused the multi-year, $900 million Sky Terrace rebuild project at the Racetrack. That pause was a direct, smart reaction to rising material cost uncertainty and macroeconomic risks-a real-world example of external risks hitting internal plans. Trade tariffs in early 2025 had already caused delays and frozen some modernization initiatives.

Mitigation and Actionable Insights

Management isn't sitting still; they are actively mitigating these risks with strategic actions. They are diversifying revenue through targeted expansion, such as completing the acquisition of 90% of Casino Salem for $180 million in August 2025 and adding capacity with 450 incremental HRMs at Rosie's Richmond. This growth in their Live and Historical Racing segment helps balance the Derby risk.

The financial team is also set to get a boost from a new U.S. tax law, which allows them to begin utilizing a $91.2 million deferred tax asset, improving future cash tax outcomes. That's a non-operational win that shores up cash flow. They also returned $53.5 million of capital to shareholders through share repurchases in Q3 2025, demonstrating confidence in their underlying free cash flow generation. You can read more about the full picture in Breaking Down Churchill Downs Incorporated (CHDN) Financial Health: Key Insights for Investors.

Next Step: Portfolio Managers: Recalculate CHDN's interest coverage ratio for Q4 2025, factoring in the expected cash flow benefit from the $91.2 million deferred tax asset to better assess debt service risk.

Growth Opportunities

You're looking for where Churchill Downs Incorporated (CHDN) will find its next gear of growth, and honestly, the answer is a blend of premium racing experiences and aggressive expansion in Historical Racing Machines (HRMs). The company isn't just relying on the Kentucky Derby; they are systematically investing their capital to drive predictable, year-round revenue outside of Derby Week. This strategy is defintely paying off, with the Live and Historical Racing segment posting its 21st consecutive quarter of record growth in Q3 2025.

The core growth drivers are clear and capital-intensive, but they target high-margin revenue streams. For 2025, the company expects to spend between $200 million and $240 million on project capital, a significant investment in future capacity. Here's the quick math on their strategic focus:

• Kentucky Derby Premiumization: The $280 million to $300 million Victory Run project will replace 6,400 existing seats with approximately 7,800 new premium seats, focusing on the high-margin guest experience.
• HRM Market Expansion: Acquisitions and new venue openings are rapidly expanding their gaming footprint, especially in Virginia and Kentucky.
• Digital Wagering: The flagship TwinSpires Horse Racing app continues to set records for betting volume and new registrations.

The near-term revenue projections reflect this investment. Analysts estimate Churchill Downs Incorporated's full-year 2025 revenue will hit approximately $2.96 billion. This steady growth is also supported by operational efficiency, with full-year 2025 estimated Earnings Per Share (EPS) projected to be around $6.30, though some analysts are forecasting as high as $6.92. Plus, management expects lower cash tax payments of $50 million to $60 million in both 2025 and 2026 due to new federal tax provisions, which is a nice boost to cash flow.

Strategic Initiatives and Market Expansion

The company's strategic playbook is simple: buy, build, and premiumize. They are leveraging their competitive advantage-the iconic Kentucky Derby brand-to fund expansion into the regional gaming market. The Live and Historical Racing segment, which includes Historical Racing Machines (HRMs), is the engine of consistent growth. For example, the Q3 2025 acquisition of 90% of Casino Salem for $180 million and the opening of the Roseshire Gaming Parlor in Virginia are concrete examples of this strategy in action.

One major strategic partnership is the new NBC deal, which will broadcast the Kentucky Oaks race in prime time for the first time in 2026. This is expected to deliver an incremental $10 million increase in adjusted EBITDA that year by amplifying awareness and wagering. You can read more about the company's financial standing in Breaking Down Churchill Downs Incorporated (CHDN) Financial Health: Key Insights for Investors.

Here is a snapshot of the Q3 2025 performance, which drives the full-year outlook:

The company is also committed to shareholder returns, having approved a new $500 million stock repurchase program in Q2 2025 and increasing its annual dividend by 7%, marking its fifteenth consecutive year of dividend growth. That's a strong signal of management's confidence in sustainable cash flow. They are building a fortress on the back of the Derby's cash generation and the high-growth HRM segment.