DraftKings updates, analysts see prospects overcoming headwinds
DraftKings (NASDAQ: DKNG ) stock has struggled heading into 2024 after more than tripling last year, as state data showed it lost market share slightly to rivals ESPN Bet and FanDuel . At least one analyst thinks DraftKings' decline is acceptable.
In a new client note, Stifel analyst Jeffrey Stantial upgraded shares of the online sports betting operator to "buy" from "hold" while also raising his price target to $45. This represents an increase of 19.6% from today's closing price.
We are capitalizing on the minor correction as we believe near-term headwinds for the stock are easing (ESPN betting promotions; sports seasonality), allowing investors to return to a fundamental outlook with healthy conditions driving growth in equity holdings and structural expansion, analysts write , interest rates and "marketing/advertising discipline and fixed cost efficiencies provide the potential for already impressive earnings before interest, taxes, depreciation, and amortization (EBITDA)."
With fourth-quarter earnings reports expected in the coming weeks, operators of online sportsbooks, including DraftKings, told investors in November that results could be wiped out by bettors' luck.
For DraftKings: Short term pain, long term gain
Stantial estimates that DraftKings lost 600 basis points in online sports betting between September and December, due in large part to the debut of ESPN Bet in November and FanDuel's dominance among NBA bettors.
As for ESPN Bet, data confirms that bettors are excited about Penn Entertainment's (NASDAQ: PENN ) new platform, but the operator is spending more on promotions than Barstool Sportsbook, and those incentives are now is being cut. Advertising spending has long been cut. We're working hard to get punters in, but keeping them is another story. Stantial said DrafKings has what it takes to deliver exceptional customer loyalty.
The analyst added: “Shorts point out that ESPN Bet’s subscriber retention is likely to be high, with a more reliable path to market share growth through improved product and media integration (such as the recent addition of betting slips). "However, user retention is primarily driven by the quality of the betting product and our research shows that DraftKings/FanDuel is still clearly the best in class at the moment and will have the opportunity to expand in 2024 across market and betting types, user interface," Improve user customization and added value. ” Added features (bet tracking; early payout).
Another short-term issue with DraftKings
Stantial acknowledged that his call for DraftKings is "not without controversy" as FanDuel parent Flutter Entertainment (OTC: PDYPY ) is expected to list its shares on the New York Stock Exchange (NYSE) on Monday, January 29. That's it, maybe some retail investors can exit their DraftKings positions and buy into the larger, more profitable Flutter.
Still, there are compelling reasons to own DraftKings, including strong same-state trends, strong free cash flow (FCF) generation potential, and iGaming growth - an area where the operator is the clear leader.
“We see compelling FCF developments and consensus forecast upside driven by continued product implementation, healthy co-state/GGR growth trends, phased state legalization, structural retention expansion, continued market scope rationality Marketing/promotion driven. And newfound fixed cost discipline and scale efficiencies,” Stantil concluded.
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Source: www.casino.org
