DraftKings PT Cut by Macquarie, Still Compelling Idea
Posted on: May 12, 2025, 10:45h.
Last updated on: May 12, 2025, 11:10h.
- Price target lowered following tepid Q1 results, but analyst is still bullish
- Overall performance still solid
Shares of DraftKings (NASDAQ: DKNG) rallied Monday, following other gaming stocks higher on news that the US and China made some progress on trade talks, fighting off a price target cut in the process.
In a recent note to clients, Macquarie analyst Chad Beynon trimmed his price forecast on DraftKings to $53 from $55 after the gaming company reined in its 2025 earnings and revenue guidance. The operator delivered first-quarter results last Friday, noting that if not for a spate of client-friendly outcomes on the NCAA Men’s Tournament in March, it would have boosted its 2025 financial outlook. While DraftKings’ streak of raising guidance was snapped, Beynon said positive factors remain at play.
Notably, structural hold keeps rising, which, combined with continued handle market share gains, is a powerful combo that we think positions DKNG for strong top and bottom line outperformance in the near future,” observes the analyst.
Beynon maintains an “outperform” rating on the stock, putting him among the 28 analysts that rate it the equivalent of “buy” or “strong buy” and his $53 price target is in line with the Wall Street consensus, implying upside of 41% from current levels.
DraftKings Stock Has ‘Bargain’ Traits
DraftKings is a growth stock, but that doesn’t mean it’s entirely bereft of value traits. In fact, Beynon argues DraftKings has some hallmarks of a discounted name.
He notes that based on the company’s expected earnings before interest, taxes, depreciation, and amortization (EBITDA) compound annual growth rates (CAGR) of 22% and 117%, respectively, from 2024 through 2027, the stock is one of the broader market’s “best bargains.”
“More importantly, the company’s value drivers are outperforming expectations, product enhancements are driving higher structural hold and promos are deployed more efficiently, all while handle growth outpaced the market in 1Q (+16% vs +11%),” notes Beynon.
In the first quarter, DraftKings’ monthly unique players grew 26% to 4.3 million, helped by solid client acquisition and retention as well as newer iGaming offerings and the integration of the Jackpocket lottery courier app. Jackpocket isn’t available in all the states in which DraftKings offers online sports betting, but its customers are usually sticky and some are easily converted to the sports wagering space.
DraftKings Stock Tepid on Quantitative Basis
While DraftKings’ first-quarter results were hindered by March Madness, analysts and investors found some solace in a structural hold rate of 10.4%. Beynon forecasts that will rise to 11% in the fourth quarter when NFL wagering ramps up.
If there’s a knock on DrafKings stock, it’s that it appears mediocre on quantitative metrics, including return on assets (ROA) and return on equity (ROE).
“The quant model currently holds a neutral view on DraftKings Inc. The strongest style exposure is Growth, indicating this stock has good historic and/or forecast growth,” according to Macquarie. “Growth metrics focus on both top and bottom line items. The weakest style exposure is Profitability, indicating this stock is not efficiently converting investments to earnings; proxied by ratios like ROE or ROA.”
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