Goldman Upgrade Golden for DraftKings Stock, Shares Soar, Helped by Michigan Forecast

Posted on: January 26, 2021, 12:28h. 

Last updated on: January 26, 2021, 01:50h.

DraftKings (NASDAQ:DKNG) stock is one the best-performing equities Tuesday after Goldman Sachs analyst Stephen Grambling upgraded the name.

DraftKings stock
DraftKings stock soared today. A Goldman Sachs upgrade is the reason. (Image: Barron’s)

In late trading, shares of the sportsbook operator are higher by about 6.70 percent after Grambling lifted his rating on the stock to “buy” from “neutral,” while boosting his price target to $65 from $45. The new forecast implies upside of nearly 27 percent from the Jan. 25 close.

He estimates DraftKings will report $244 million in fourth-quarter revenue and $880 million this year. Both forecasts are modestly higher than the Wall Street consensus.

We upgraded DKNG based on their sustained market-leading position in key states, ability to participate in the economics of single-operator states, and presence of national contracts which will allow them to achieve scale sooner than the broader peer group,” writes Grambling in a note to clients.

Since the company went public last April, DraftKings is mostly beloved on Wall Street, as analysts are willing to look past the operator’s lack of profitability and focus on top-line growth potential as more states approve sports wagering.

Goldman’s Grambling also highlights DraftKings’ enviable market share and the ability to generate some positive economics in some single-operator locations. He also touts national agreements that allow it to achieve scale more rapidly than rivals. It’s usually the number one or two online sportsbook in most states.

Speaking of State Impact on DraftKings Stock…

Michigan and Virginia recently became the latest states to join the online sports betting party, with the Wolverine State also allowing iGaming.

That’s a boon for DraftKings, because those are the eighth- and 12th-largest states, respectively, combining for a population of almost 18 million. Some analysts are already optimistic about DraftKings’ perch in those markets, particularly Michigan.

“We expect January handle in Michigan could be ~$50M for OSB. For market share, we expect both DraftKings and FanDuel to settle at ~30 percent share (DKNG tends to over-index to app downloads, while FanDuel under-indexes), Barstool and BetMGM at ~10-15 percent share, and other players to remain in single-digits,” according to Bank of America.

Barstool Sportsbook is Penn National Gaming’s (NASDAQ:PENN) sports betting mobile app. BetMGM is a 50/50 joint venture between MGM Resorts and UK-based Entain Plc.

Goldman Likes Penn, Too

Goldman’s Grambling also reiterated a “buy” rating on Penn. But that good news isn’t helping the stock as it’s down 3.31 percent in late trading.

“We see room for continued development, given operators relationships with major traditional media arms (such as ESPN), and the success in-house content at Barstool has had by intertwining its media arm with the sportsbook,” said the analyst.

Earlier data out of Michigan could be pivotal for the near-term fate of Penn shares. The state is just the second in which the Barstool app is operational. Pennsylvania was the first. The company is aiming to have the app up and running in 10 states by the end of this year.