The investment bank initiated coverage because Churchill Downs' stable of six racetracks and branding creates a substantial growth opportunity, particularly with overseas distribution.
"We take a favorable view of diversified operators," states CIBC's report. "In our view, broad-based geographic and portfolio diversity can smooth the earnings stream, as well as insulate the company from poor results at any one track."
Other pari-mutuel companies favored by CIBC World Markets includes Magna Entertainment (Nasdaq: MIEC), MTR Gaming (Nasdaq: MNTG), which owns Mountaineer Racetrack in Chester, W.V., Penn National Gaming (Nasdaq: PENN), and Canterbury Park (Nasdaq: TRAK) in Minnesota.
CIBC World Markets has given "strong buy" ratings to MTR Gaming and Penn National.
"The presence of slots at tracks, as well as ownership in of casinos in the portfolio, are a significant growth driver that can improve valuation," Steinberg and Schmitt said about these companies.
CIBC World Markets is the global investment banking, securities brokerage and asset management arm of the Canadian Imperial Bank of Commerce.