Morningstar: DraftKings Trading Well Below Fair Value Estimate

With investors pondering the effects of elevated spending and prediction market pressure, shares of DraftKings (NASDAQ: DKNG) are off more than 40% year-to-date, but that decline may be creating an unusual valuation opportunity with the battered gaming stock.

In a new report, Morningstar analyst Dan Wasiolek points out that even amid intensifying rivalries with prediction markets, which are forcing DraftKings and other sportsbook operators to spend mightily, DraftKings’ core business remains strong.

He adds that the NBA’s recent crackdown on select player proposition markets, which DraftKings and rival FanDuel are complying with, won’t hinder sports betting demand. That perspective is relevant because the NBA regular season starts today and the association is the second-most wagered-on professional league in the U.S. trailing only the NFL.

DraftKings a Value Stock?

DraftKings is typically viewed as a growth stock and while it’s not a value stock in the traditional sense, it may be offering considerable value following this year’s decline.

While Morningstar acknowledges the “uncertainty” rating on the gaming stock is “high,” it rates DraftKings five stars, implying it’s deeply undervalued. Additionally, the research firm’s $39 fair value estimate on the stock implies the stock could have substantial upside from today’s close at $20.50.

“Investors are pricing in a dire environment, which could cap shares until there is regulatory visibility on prediction markets, perhaps in 2027,” adds Wasiolek.

Morningstar forecasts DraftKings sales and earnings before interest, taxes, depreciation and amortization (EBITDA) growth of 8.1% and 24.9%, respectively, from 2026 through 2035.

Regulatory Clarity Could Boost DraftKings Stock

As has been widely documented, regulatory clarity on the fate of prediction markets’ ability to continue offering sports event contracts could be just what the doctor ordered for DraftKings and other sportsbook stocks.

For now, the U.S. Supreme Court doesn’t have a prediction market case on its docket, but it’s widely expected that could change as soon as 2027.

Consensus is building in the legal and investment communities that the worst-case outcome for prediction markets — stripped of the ability to offer sports derivatives — would be a boon for companies such as DraftKings because they can get back to focusing on their core sportsbook businesses rather than allocating capital to their own yes/no exchanges. If recent appeals court rulings are any indication, that could be what’s in store at the Supreme Court.

“In 2018, a Supreme Court ruling gave states power to regulate sports betting,” concludes Wasiolek. “Recently, prediction market companies have offered sports event contracts, claiming they are derivative swaps and therefore regulated federally. Two of three appeal court rulings think otherwise.”