DraftKings Analysts Can’t Help Themselves as Price Targets Move into $70s
Posted on: October 13, 2020, 09:07h.
Last updated on: October 14, 2020, 11:24h.
Wall Street analysts covering DraftKings (NASDAQ:DKNG) are quite enthusiastic about shares of the sportsbook operator. That ebullience is on display again as a pair reveal nice price forecasts on the name that averages out to $73.
Credit Suisse analyst Benjamin Chaiken initiated coverage of the daily fantasy sports (DFS) provider with an “outperform” rating and a $76 price forecast, the highest yet on the name. He says that bullishness is buoyed by multiple factors.
In a note to clients, Chaiken relayed four drivers for their outperform rating.
First, upside to estimates and market TAM from the evolution of in-game betting, which benefits margins and volumes. Secondly, structural differences in the construction of the US sports betting market. Unique customer acquisition strategy and marketing relationships, and an acceleration in sports betting/iGaming legalization in the US following COVID.
His $76 forecast implies an upside of 55.6 percent from the Oct. 9 close. DraftKings stock tumbled last week after the company said it’s selling up to 20.8 million shares at $52 million to raise capital.
Credit Suisse’s Chaiken points out that, at present, DraftKings is available to just 18 percent of the US population, with “line of sight opportunity to a few other states.”
However, the analysts foresee a “blue sky” scenario where the stock could surge to $100 if California is added to the live and legal sports betting fray. Online sports betting (OSB) approval in the Golden State would be a major coup for operators due to sheer numbers.
With a population of nearly 38 million, California is more than quadruple the size of New Jersey, the largest US sports betting market.
Even when combining New Jersey’s and New York’s population — the Garden State derives plenty of sports wagering revenue from the neighboring Empire State — California still has about 10 million more residents.
While the coronavirus pandemic is creating state-level cash crunches throughout the country, sports betting is still far from a reality in the Golden State. Tribal operators there are pursuing it, but they want exclusivity, and if their effort becomes state law, it could be several years before online wagering is allowed.
Joining the Party
Needham analyst Brad Erickson was among those chiming in on DraftKings today. He reiterated a “buy” rating and $70 forecast on the name. He cited factors such as return on investment in customer acquisition and dominant positioning in crucial states, such as New Jersey.
“We remain confident that the company is acquiring customers with a stringent view of [return on investment and customer lifetime value] while maintaining, if not increasing, its share in the early markets,” said Erickson in a note. “Retention remains an open question. But we take DKNG’s performance to date in states like NJ (with 14 other competitors) as the best indicator for success.”
Oppenheimer analyst Jed Kelly lifted his estimate on the stock to $65 from $55, while Deutsche Bank’s Carlo Santarelli is more tepid in his assessment, rating DraftKings a “hold” with a $48 forecast. Santarelli previously offered up less-than-glowing assessments of at least one DraftKings rival, so his reservations on the name aren’t too surprising.
He says investment in DraftKings isn’t really buying into the company, but rather the concepts of iGaming and sports betting growth.
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