DraftKings, Buoyed by Election Results, Has Ample Catalysts, Says Credit Suisse

Posted on: November 4, 2020, 08:41h. 

Last updated on: November 4, 2020, 10:23h.

DraftKings (NASDAQ:DKNG) stock is shaking out of what’s been a lengthy funk. The stock soared Wednesday after several states on Election Day joined the roster of legal sports wagering locations.

Maryland polls
Poll workers in Maryland count votes on Election Day. DraftKings got a lift from some election results and Credit Suisse sees other catalysts. (Image: Baltimore Sun)

Just over two hours into the trading day, DraftKings is higher by almost five percent. This puts it on pace for one of its best intraday performances in about a month. The stock entered Wednesday lower by 38.12 percent over the past month. It was off almost 39 percent from its prior highs following a dilutive secondary offering and expiration of a lockup period in October.

Citing an array of near-term catalysts on the sports calendar, including a pair of golf events, Credit Suisse tells investors to use weakness in the name as an opportunity to accumulate.

We would be adding to the stock here in what we feel is an underappreciated event path: 2 Masters events (November and April) and The Match III (Mickelson and Charles Barkley vs. Peyton Manning and Steph Curry),” said the bank. “Previously, the Match II was the highest-grossing golf event ever for DKNG.”

Credit Suisse rates DraftKings stocks “outperform,” with a $76 price target, implying it could more than double from the Nov. 3 close.

Election Day Help

DraftKings and other sports wagering equities rallied Wednesday after it became clear that the roster of states where the activity is permitted is growing.

On Election Day, voters in most Louisiana parishes, Maryland, and South Dakota approved sports betting propositions. For operators such as DraftKings, the Old Line and Pelican states are significant additions to the list of areas in which they can offer sports wagering. DraftKings and rival FanDuel showed as much, pouring millions of dollars into campaigns supporting sports betting initiatives in those two states.

Maryland offers the alluring combination of a dense population base, high-income demographics, and strong sports culture. Likewise, Louisiana has its own rabid fanbase — particularly for the NFL’s New Orleans Saints and LSU football — as well as geographic advantages. Some of the state’s casinos are located short drives from major population centers in Texas, a state with essentially no chance of legalizing sports betting anytime soon.

Other Catalysts

As noted above, one of the primary overhangs for DraftKings stock in recent months has been a massive amount of new supply coming to market. The new stock arrived by way of the aforementioned secondary offering. early investors trimming stakes, and the expiration of a lockup period, which allowed employees to sell equity for the first time.

Credit Suisse sees that scenario easing in early January, acting as a “clearing event for the stock after an extended period of supply.” The bank also sees opportunity for DraftKings north of the border, as the Canadian province of Ontario, the country’s largest by population, mulls online casinos and permitting single-event sports wagering.

There’s “an accelerating sports betting/iGaming opportunity in Ontario, Canada, that has flown under the radar,” said the research firm. “We think there could be news around expanded legalization soon, which could be a catalyst for sentiment and street estimates.”