Indiana University Southeast finance students place second at annual CFA competition

A team of finance students at Indiana University Southeast worked together for four months, extensively researching all aspects of Churchill Downs Inc. (CDI) for this year's Certified Financial Analyst (CFA) Institute Research Challenge, organized locally by CFA Society Louisville. Participants were tasked with performing an in-depth financial analysis of a company then formulating a recommendation on whether it would be a good time to buy or sell stocks in that company. The IU Southeast team consisted of three students who worked with an academic advisor and a mentor. 

This year, the competition was made particularly challenging due to COVID-19 restrictions that prevented the trio from doing on-site visits to get a feel for the corporate culture at CDI or ask in-person questions of company representatives. Reynaldo Sierra-Escobedo, Jordan Pope-Studstill, and Danny Recktenwald were the three UI Southeast students on the team. Elizabeth Reisz served as faculty advisor and Jeff Hoskins, CFA for River Road Asset Management was the team's mentor. 

As explained in a news release from the university, CDI presented a challenge because analysis requires understanding both the traditional brick and mortar side of the business and the online business. CDI owns and operates Churchill Downs as the site for the world-famous Kentucky derby, along with thousands of slot machines and video lottery terminals in eight states. CDI also operates the largest online horseracing platform in the United States and is also involved in other online sports betting. Although CDI has an active presence in the world of online gaming and betting, the team determined that the company was slow to capitalize on its name recognition in the foray into that industry. 

The team took this analysis and decided that the current valuation of CDI (publicly traded in the stock market as CHDN) likely overestimates the worth of the company based on the observation that although the online gaming and betting industry is growing, CDI is not likely to grow as quickly as its competitors in this area. As the team reported in its written analysis, "We believe that the market has over‐estimated CHDN's current ability and desire to capitalize on the sports‐betting opportunity. Additionally, we believe that creeping economic, tax and competitive headwinds, along with lingering COVID‐19 uncertainty, will dampen long‐term, high‐growth prospects."

The analysis ended with the recommendation that it is a better time to sell CHDN stock than buy it. After submitting their written paper, the team from IU Southeast was in third place overall. But after making their presentation, the team gained ground, winning the presentation segment, and finished in second place overall. Sierra-Escobedo, the first ever undergraduate student to make the team, said of the presentation and the competition, "We knew we had great research and went in with confidence to the presentation. I knew that this would be a great learning experience for me, and it has pushed me to stay in the finance industry."

The faculty advisor, Reisz, praised the students, "This team kept up the long tradition of hard-working, focused and diligent CFA Challenge teams that have represented IU Southeast so admirably. They did an excellent job of seeking and incorporating feedback to produce their best work."

The competition presents a unique learning opportunity for participants. Recktenwald described the experience, "No guard-rails, no map, no instruction books, no right or wrong, just three team members guided by intuition, curiosity and two very smart advisors, trying to determine a 'buy' or 'sell' position. It is what the college experience should be about and is something that every business student at IU Southeast should want to be part of in the future."