DraftKings Slump Continues as Two Analysts Pare Price Targets

Posted on: January 21, 2022, 11:15h. 

Last updated on: January 21, 2022, 12:37h.

DraftKings (NASDAQ:DKNG) stock is probing new lows Friday. That’s extending a slide that’s seen the sportsbook operator shed nearly a quarter of its value just this month after two sell-side analysts trimmed price targets on the shares.

DraftKings price target
DraftKings highlighted at the Nasdaq market site in New York, above. Two analysts lowered price targets on the stock today. (Image: Nasdaq)

In midday trading, DraftKings is lower by about 3.7 percent on volume that’s already surpassed the daily average, putting the stock in danger of its first close below $20 since May 2020 – just weeks after it became a freestanding publicly traded company.

In notes to clients today, Needham analyst Bernie McTernan and Northland’s Greg Gibbs each keep bullish ratings on DraftKings, while dramatically reducing price forecasts on the stock. Gibbs lowers his price outlook on the daily fantasy sports (DFS) giant to $45 from $75, while McTernan’s revised estimate is $46, down from $73.

Both calls are well below the Wall Street consensus of $56.13. Even though those are downward revisions, DraftKings stock would need to more than double from current levels to reach either price target. Gibbs and McTernan join other analysts in lowering price forecasts on DraftKings. As recently as last October, the consensus estimate on the gaming name was close to $70.

Maybe Reasons to Be Optimistic

In recent months, DraftKings stock isn’t giving investors much cause for optimism. But Gibbs and McTernan don’t view the name as a lost cause.

Needham’s McTernan keeps a “buy” rating on the stock, noting that the operator has a viable customer acquisition strategy. That should help reach the first or second spot in terms of market share in the states in which it does business.

Northland’s Gibbs acknowledges his fourth-quarter profitability estimates for DraftKings may have been too aggressive. But he maintains an “outperform” rating on the shares. The analyst adds his fourth-quarter assumptions for DraftKings didn’t account for sports betting launches in Arizona and Wyoming, as well as iGaming and sports wagering in Connecticut.

Gibbs also points out that his lowered price target on DraftKings is reflective of the broader market retrenchment that’s hammering growth and technology stocks to start 2022. Unprofitable growth companies — of which DraftKings is one — are proving most vulnerable this month.

Profitability Still Elusive for DraftKings

Amid persistent inflation and the likelihood that the Federal Reserve will raise interest rates multiple times this year, investors are rapidly souring on companies that aren’t profitable. Year-to-date, DraftKings is succumbing to that pressure.

Compounding those woes is the fact that some rivals will beat DraftKings to the profitability punch. Earlier this week, BetMGM forecasts it will be profitable on the basis of earnings before interest, taxes, depreciation and amortization (EBITDA) in 2023.

Some analysts peg DraftKings’ timeline to profitability at 2024 at the earliest, citing increasing competition and high promotional spending.