DraftKings (NASDAQ:DKNG) stock continues garnering support on Wall Street, as Oppenheimer becomes the latest bank to start coverage of the sportsbook operator and daily fantasy sports (DFS) company. They gave it a bullish rating and a price forecast that’s well above current levels.
The research firm initiated DraftKings today with an “outperform” rating and a $48 price target, implying upside of about 30 percent from current levels. As is the case with many of the brokerage houses that were quick to track DraftKings following the April 24 initial public offering, Oppenheimer sees increasing state-level legalization of sports betting as a catalyst for the stock.
As more states legalize sports gambling, we believe competencies in product development and customer acquisition that DKNG utilized to become the DFS market leader (over 60% share) will allow the company to be a critical player in accelerating the shift in US sports betting from ~$150B wagered illegally/offshore to licensed domestic operators,” said the bank.
DraftKings currently books bets in nine states, including seven where it’s able to take mobile and online wagers. That number could grow over the near-term if the company is successful in its bid to fast-track its entry into Illinois, which is forecast to be the largest sports betting market in the Midwest.
In DraftKings’ less than two months as a public company, analysts, broadly speaking, are fawning for the same drivers of upside for the stock: sports betting and online casinos. Some of the company’s devotees are enthusiastic about opportunities in the rapidly growing in-game wagering market.
That’s a segment DraftKings CEO Jason Robins recently highlighted, and one that’s barely scratching the surface of its potential in the US. Live wagering is a significant revenue driver for European sportsbooks, and Robins believes it will catch on in the US, particularly with slower-moving sports such as baseball, golf and soccer.
“Legalized sports betting and iGaming markets are in their very early stages of growth, and we see an $18 billion revenue opportunity at scale that also benefits from a sophisticated in-game wagering market,” according to Oppenheimer.
The research firm’s call for $18 billion markets in sports betting and internet casinos isn’t far-flung, as it’s in the ballpark of one of the rosiest forecasts of $20 billion apiece, which was recently delivered by Bank of America.
While DraftKings is hot in its infancy as a public company, with stock more than doubling from its IPO price, some on Wall Street are expressing concerns about its lofty multiples and how long it will take for the company to become profitable. With those factors in mind, analysts frequently view the stock as a long-term idea.
“While a premium valuation and high cash flow burn likely create above-average volatility near term, we emphasize the long-term nature of our rating,” said Oppenheimer.
Of the seven sell-side firms covering DraftKings, six have bullish or very bullish ratings on the shares. Oppenheimer’s $48 price target is well above the consensus forecast of $42.17.