Analyst Boosts DraftKings Rating, Citing Positive Earnings Prospects
Having a somewhat challenging day for stocks, DraftKings (NASDAQ: DKNG) shares are making a nice impression after an analyst boosted their opinion on this sportsbook operator.
In a message to clients on Tuesday, Argus analyst John Staszak bumped up his recommendation on the gaming stock from "hold" to "buy" with a new target price of $22. This suggests a potential rise of 14.6% from the closing price on March 6.
Given DraftKings' decreasing customer acquisition costs and its potential to expand by 20% or more in the upcoming years, we are convinced about its long-term growth potential stated Staszak.
His $22 price target on the gaming stock is lesser than the average Wall Street prediction of $23.80 and sits at the lower end of the $13 to $38 range held by analysts following the stock. Out of those analysts, 16 rate DraftKings as a "buy" or "strong buy," while a dozen have an equivalent of a "hold" rating on the shares, and three rate it as a "sell."
Argus Expects Growth with DraftKings
Last month, DraftKings based in Boston boosted the center of its 2023 revenue projection to $2.95 billion from $2.9 billion while increasing the center of its predicted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss to $400 million from $525 million.
Staszak suspects the firm can achieve even more. The analyst predicts $3.1 billion in 2023 sales, up from $323 million in 2019. The analyst also indicates enhanced customer retention, market share growth, and increased profitability in jurisdictions where the operator was established this year as possible triggers for the stock.
The stated 2023 guidance provided by DraftKings comprises markets in which the company is currently working and those in which it anticipates launching this year, such as Massachusetts and Puerto Rico.
The company’s product line, featuring iGaming, advanced technology, and same-game parlays (SGPs), is also considered a positive factor.
“As more states legalize online sports betting and consumers spend more of their income on bets, we expect DKNG’s revenue to reach $3.1 billion in 2023,” added the Argus analyst.
DraftKings' Surprising Value for Money
Typically described as not appealingly priced, DraftKings is frequently viewed as overvalued. Some analysts argue the stock is too costly. However, Staszak holds a contrasting view.
The analyst points out DraftKings trades at a price/sales multiple of 3.6X compared to 7x for a collection of high-growth tech stocks, including previous favorites such as Peloton Interactive, Shopify, Teladoc, and Zoom Video.
Staszak believes the valuation disparity is excessive, considering DraftKings' decreasing customer acquisition costs and promising growth outlook. The gaming firm anticipates profitability in 2024, although some analysts believe it may happen earlier this year.
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