Posted on: September 26, 2023, 03:28h.
Final up to date on: September 26, 2023, 03:28h.
Following a droop that dates again to July, DraftKings (NASDAQ: DKNG) inventory rallied at present with the assistance of bullish commentary from JPMorgan.
In a be aware to purchasers at present, analyst Joseph Greff upgraded the net sportsbook operator to “chubby” from “impartial” whereas boosting his value goal on the not too long ago downtrodden shares to $37 from $26. That new forecast implies upside of 35% from the Sept. 25 shut and arrived as DraftKings is off 19.31% from its 52-week excessive, printed on Aug. 4.
We’re benefiting from sluggish share value efficiency since late July,” wrote Greff. (Sports activities betting) is an interesting sector, with engaging same-store and new market progress prospects, towards the backdrop of an industry-wide enhancing working expense management atmosphere.”
Greff’s $37 value goal on DraftKings, which is barely above consensus, is predicated on 15x the operator’s anticipated 2026 earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) of $1.2 billion and estimated year-end money of $3 billion in 2026. Present brief curiosity within the inventory is 5.4% — excessive sufficient {that a} contemporary rally within the shares may compel bearish merchants to cowl these dropping bets.
Catalysts Abound for DraftKings Inventory
Even with the current pullback, DraftKings inventory has been a 2023 star within the gaming {industry}, surging 144.29% because the begin of the 12 months.
Catalysts are in place for the shares to rebound and, doubtlessly, attain Greff’s value goal. These sparks embody a normalizing value atmosphere, DraftKings’ personal emphasis on higher managing expenditures and a lowering dependence on new markets to drive top-line progress.
“DKNG stands to profit from a continued enhance in market share from greater maintain charges (pushed by parlay combine and higher danger/ buying and selling) and improved loyalty (from model recognition, belief, and product enhancements),” added the JPMorgan analyst. “Buyer acquisition prices can proceed declining as nationwide scale is achieved and gross sales/advertising prices fall precipitously. These translate to raised flow-through and speedy EBITDA margin growth.”
Although not talked about by Greff, DraftKings has different revenue-generating avenues that probably aren’t totally appreciated by the funding group as of but. These embody DraftKings Market and Reignmakers — a fantasy sports activities recreation rooted in nonfungible tokens (NFTs).
DraftKings Establishing a Moat
“Huge moat” is a phrase incessantly bandied about in Company America to explain an organization’s aggressive benefits. Put merely, it highlights a agency’s capacity to maintain opponents from stealing market share and/or its capacity to retain prospects by making switching to a rival unappealing.
Whereas limitations to entry within the sports activities wagering {industry} are comparatively low and there are dozens of opponents within the US, the home sports activities betting area is basically a duopoly managed by FanDuel and DraftKings.
As famous by JPMorgan’s Greff, DraftKings has constructed an enviable moat — one which allowed it to chase away a viable competitor in Caesars Sportsbook. That standing is all of the extra necessary at a time when Fanatics and Penn Leisure (NASDAQ: PENN) with ESPN Wager need to problem the FanDuel/DraftKings duopoly.