Caesars, Flutter Are Wells Fargo’s Top Sports Betting Equity Ideas, Tepid on DraftKings
Posted on: December 17, 2021, 10:22h.
Last updated on: December 17, 2021, 12:56h.
Following a rough stretch for a variety of sports betting stocks, some banks are reassessing ratings and price targets on those names. At Wells Fargo, Caesars Entertainment (NASDAQ:CZR) and Flutter Entertainment (OTC:PDYPY) top the list of near-term ideas.
In a note to clients today, analyst Daniel Politzer said Caesars and Flutter, the parent company of FanDuel, offer investors the most compelling risk/reward profiles in the sports wagering industry at the moment.
CZR and FLTR offer the best risk/reward here, as we believe these companies’ management teams have both the credibility and track records to forge a path to profitability (both have said they expect cash flow to turn positive during 2023),” he said in a note to clients.
Politzer reiterates “overweight” ratings on both names. He started coverage of 11 gaming stocks in mid-September, with Caesars and Flutter also ranking as two of his preferred picks at that time.
Caesars, Flutter Attractive After Pullbacks
Caesars and Flutter are joining other gaming equities to the downside in recent weeks. But there’s no shortage of bullish opinions on the names, stating the retrenchments experienced by the stocks could be creating attractive entry points.
Still, Politzer trims his Caesars price target to $127 from $145. But the new forecast implies upside of 47.6 percent from the Dec. 16 close. The Wells Fargo analyst adds the pullback in iGaming and online sports betting equities is creating interesting opportunities, of which Caesars is one.
As for Flutter, FanDuel is the largest online sportsbook operator in the US, and recent state-level data suggests the operator is maintaining or expanding market share in marquee states, such as Michigan and New Jersey. November numbers out of New Jersey also indicate the FanDuel online casino is experiencing hot top-line growth. The obvious 2022 catalyst for Flutter shares is a spin-off of FanDuel. But there’s more to the story.
Flutter, which also owns Paddy Power and PokerStars, controls some of the most recognizable brands in mature betting markets, such as Australia and Europe. That’s while many of its US competitors have no international exposure.
Downbeat, Sort of, on DraftKings
Down 31 percent over the past month, DraftKings (NASDAQ:DKNG) is one of the most beleaguered sports betting stocks, and Well’s Fargo’s Politzer offers a lukewarm assessment of the name.
The analyst maintains an “overweight” rating on DraftKings, projecting it as a top-four iGaming/online sportsbook operator over the long term. But he notes market share trends and the oft-cited path to profitability are lumpy.
His $41 price target on the stock, which is well above the $28.50 area at which it currently trades, is based on a 2025 enterprise value/sales multiple of 5x. That’s compared to DraftKings’ range of 5x to 8x over the past 18 months.
Politzer adds the stock’s 44 percent fourth-quarter slide is easing valuation concerns. But that’s not yet inviting buyers, as highlighted by a 14.21 percent decline over the past week.
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