DraftKings gets Goldman Sachs buy rating on new coverage
Shares of online sports betting operator DraftKings (NASDAQ: DKNG ) were mixed, rising 2.74% after Goldman Sachs issued a bullish forecast for the company.
In a note to clients today, analyst Ben Miller rates DraftKings a "buy" with a $60 price target, which implies a 37% upside from the April 15 closing price. He expects DraftKings, which reports first-quarter results on May 3, to continue to see significant revenue growth.
"We expect DraftKings revenue to increase more than 20% as the company continues to benefit from healthy growth in existing states as well as future state legalization of online sports betting and iGaming," Miller wrote.
Recent data suggests DraftKings is growing market share in online sports betting in key states including Michigan and Pennsylvania. The company also has one of the most valuable brands in the industry, and its mobile app is one of the favorites among bettors thanks to the operator's investment in technology. DraftKings has a significant advantage over some of its smaller competitors that are struggling to gain market share.
DraftKings shares are not as expensive as expected
Although DraftKings shares are up 65% over the past nine months and 134.55% over the past year, Miller believes the stock's P/E ratio is actually attractive relative to the industry and its own historical averages .
"While the stock has gained approximately 65% over the past nine months, DKNG trades at a growth-adjusted sales multiple of 0.15x (historical average multiple is 0.19x and peers currently trade at 0.17x), representing a decline over the same period About 20%," the analysts wrote.
As is the case with emerging market growth stocks after rapid gains, investors may take valuations more seriously. Conversely, valuation alone is not a reason to buy or sell a stock, and if DraftKings sticks to its tradition of increasing earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance, the stock could be viewed as mathematically undervalued increasingly many.
“We are seeing an upward trend in street revenue as estimates appear to be existing state gross gaming revenue (GGR) as a percentage of PCE, the launch of online sports betting (OSB) in new states, and iGaming and/or DraftKings “Market pricing is based on shares position," Miller added.
DraftKings Bull Paper Risks
With the stock in full swing for 2024, it's clear that DraftKings is at least immune to negative scenarios. This is disappointing for the new national legalization front. With the Georgia 2024 legislative session coming to an end, it appears that no major state will be adding sports betting or iGaming this year.
Goldman's Miller noted that risks to DraftKings' bullish thesis include sluggish launch of new status, weak growth in the operator's old status and the potential for market share erosion. However, there is currently little evidence that DraftKings is losing market share.
On the legislative front, things may be looking up in Missouri, where a strong majority of voters support increasing mobile sports betting, but it currently looks like a tall order.
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Source: www.casino.org
