Shares of Churchill Downs (NASDAQ: CHDN) rose in Wednesday’s after-hours trading following the gaming firm's declaration of a new $500 million stock buyback initiative.
The proprietor of the famous racetrack that holds the Kentucky Derby stated that the new buyback program takes the place of an equally valued one revealed in September 2021. Currently, there is $125.6 million left in the old buyback initiative.
"The new share repurchase program includes and is not in addition to any unspent amount remaining under the prior authorization,” according to a press release issued by the gaming company.
In other words, Churchill Downs is effectively increasing the repurchase plan revealed in 2021 by $374.4 million.
Church Downs Expected to Take a Practical Approach in Repurchasing Shares.
With the stock falling 20.25% year-to-date and 29.10% under the 52-week peak, Churchill Downs could potentially gain some value by repurchasing shares at these levels or if the stock keeps struggling.
The operator may acquire some of its shares in the near future; however, due to the pace of the previous buyback program and impending capital expenses, the company is probably going to adopt a cautious strategy regarding repurchasing its own equity.
Last month, when it announced its fourth-quarter results, Churchill Downs estimated expenditures reaching $920 million in the coming years to improve its namesake racetrack, striving to attract more visitors to the Kentucky Derby. The company projected it might allocate $350 million to $400 million for those projects this year.
“Share repurchases may be made at management’s discretion from time to time in the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time,” according to the statement.
Besides being a committed purchaser of its own shares, Churchill Downs also distributes a dividend — a payment that has consistently increased for over ten years.
Church Downs Participates in Gaming Sector Buyback Surge
Despite a 1% tax on buybacks introduced by President Biden's Inflation Reduction Act (IRA), this method of rewarding shareholders continues to be favored in Corporate America for various reasons. Initially, repurchase programs are perceived as indications that management teams consider their shares to be undervalued. Secondly, in contrast to dividends, investors incur no taxes when a company buys back its own stock.
These are probably some of the reasons that many gaming firms have recently revealed new buyback initiatives or expansions to existing repurchase programs.
Before today's announcement from Churchill Downs, DraftKings (NASDAQ: DKNG), Flutter Entertainment (NYSE: FLUT), Rush Street Interactive (NYSE: RSI), and Wynn Resorts (NASDAQ: WYNN) were some of the gaming firms that revealed buyback initiatives in the past few months.
