DraftKings Gains Another Wall Street Fan as Stephens Comes Aboard With Bullish Outlook
Posted on: July 1, 2020, 11:41h.
Last updated on: July 1, 2020, 01:16h.
Research firm Stephens, Inc. is the latest fan of DraftKings (NASDAQ:DKNG) stock. Analyst Jeff Cohen starts coverage of the daily fantasy sports (DFS) firm today with an “overweight” rating and a price target of $52.
Cohen’s report sent the stock higher by about one percent in midday trading. It was a modest gain following a brutal stretch for DraftKings in which the shares tumbled 12.45 percent over the past week and nearly 24 percent in June. That marked the worst run for the sportsbook operator since its April 24 initial public offering (IPO).
Cohen views the total addressable market for sports betting in the US as underpenetrated, vast, and still in its nascent stages.
We are currently in the very early innings, but we view DraftKings as one of the clear winners, given its brand recognition, product capability, and scale,” said the analyst.
The company recently reached a deal with Casino Queen, giving it entry into Illinois, which is expected to become one of the largest sports wagering markets in the country. The Prairie State, the fifth-largest by population, becomes the eighth where DraftKings offers online and mobile sports wagering.
DFS’ Latent Potential
Over the brief course of DraftKings’ life as a public company, analysts widely cite two reasons for bullishness on the stock: expansion of online casinos and sports betting. There’s something to that thesis, particularly as more states look for new sources of revenue in the wake of the coronavirus pandemic. But few on the sell-side are highlighting DFS — the business that made DraftKings a household name.
Stephens’ Cohen says DraftKings’ dominant 60 percent share of the domestic DFS market is advantageous, noting it’s a trait the company can leverage as it enters more states, potentially using DFS to lure more customers to iGaming and sports wagering.
“Their superior focus on product, tech, and data gives them a competitive advantage, allowing them to spend marketing dollars more efficiently, which should make them a market share leader in most of the states that they enter,” said the analyst.
DFS — a segment largely controlled in the US by DraftKings and FanDuel — generated $350 million in revenue last year. It’s fertile territory for operators looking to convert players to sports betting. A 2018 study the Fantasy Sports & Gaming Association found that 79 percent of DFS players that had not yet bet on sports are likely to do so in the future.
Another potential through oft-overlooked catalyst for DraftKings is its foray into streaming games to gamblers’ mobile devices, something the company moved into via a May deal with sports data provider Sportradar.
“We expect the incremental engagement resulting from DKNG’s live-stream offering will yield more in-game bets, accelerating the mix shift towards this higher-margin product,” said Stephens’ Cohen.
The streaming platform could pave the way for DraftKings to offer more in-game betting features to clients, something that is a point of emphasis for the company.
Cohen’s $52 price forecast on the stock implies an upside of almost 55 percent from where it trades at this writing.
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