Morningstar: DraftKings Trading Well Below Fair Value Estimate

As investors weigh the impact of elevated promotional spending and prediction market competition, DraftKings (NASDAQ: DKNG) shares have fallen more than 40% year-to-date—a slide that financial analysts say may present a rare valuation opportunity for value-focused investors.

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 heavily, DraftKings’ core business remains robust.

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 remains “high,” it rates DraftKings five stars, signaling that it is deeply undervalued. Additionally, the research firm’s $39 fair value estimate implies substantial potential upside from its current trading level around $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) compound annual growth of 8.1% and 24.9%, respectively, from 2026 through 2035.

Regulatory Clarity Could Boost Shares

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 across legal and financial circles that a decision stripping prediction platforms of sports event contracts would be a net positive for legacy operators like DraftKings. Such a ruling would allow traditional sportsbooks to refocus on core operations rather than diverting capital toward competing event contract exchanges. Recent appellate court rulings suggest that momentum may be tilting in that direction.

“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.”

Until the courts resolve the regulatory divide surrounding prediction platforms, DraftKings’ underlying volume growth may remain overshadowed by industry uncertainty—giving patient investors a long runway before market sentiment catches up to fundamentals.