DraftKings Drilled, as Trio of Analysts Lower Price Targets

Posted on: May 10, 2021, 07:43h. 

Last updated on: June 23, 2021, 01:08h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

DraftKings (NASDAQ:DKNG) stock is extending what’s now a precipitous decline, as at least three analysts today trimmed price forecasts on the sportsbook operator.

DraftKings price target
The opening of the DraftKings sportsbook at Del Lago Casino in New York. The stock is sliding today as three analysts reduce price targets. (Image: Auburnpub.com)

In early trading Monday, shares of the daily fantasy sports (DFS) provider are off more than six percent after stumbling 14.54 percent last week and 20.77 percent over the past month. DraftKings is off 38 percent from its 52-week high notched in March, and all that bloodletting appears to be inspiring analysts to lower price estimates on the name.

Morgan Stanley analyst Thomas Allen cut his DraftKings price target to $63 from $66, but reiterated an “outperform” rating on the stock while offering up some bullish comments.

Revenue significantly outperformed our expectations, and 2021 revenue guidance was well ahead (again), but management guided to greater earnings before interest, taxes, depreciation and amortization (EBITDA) losses this year and will issue substantially more stock-based comp than we expected,” said Allen.

Last week, Boston-based DraftKings reported a narrower-than-expected first-quarter loss on revenue that beat the consensus forecast while boosting its 2021 revenue guidance.

Allen sees DraftKings commanding 25 percent of the sports betting market and 18 percent of the iGaming segment. His $63 target is a base case scenario and in an extreme bear case, the stock could plunge to $11. However, his bull case forecast is $182 — nearly quadruple where the shares reside today.

Lack of Profitability Catching Up with DraftKings Stock

DraftKings became a standalone public company in April 2020, and in that time, there have been lingering concerns about the operator’s customer acquisition costs and runway to profitability.

The most optimistic forecasts indicate the gaming company will cease losing money sometime in 2022. But some analysts believe the EBITDA losses won’t stop until the following year. Needham analyst Bernie McTernan cut his price estimate on DraftKings to $73 from $81 just two weeks after his original forecast was revealed.

He cited widening EBITDA losses and the broader market’s preference for value stocks over growth fare as the reason for the reduction. But he still rates DraftKings a “buy” and is enthusiastic on the company’s plans to integrate social media into its sports betting platform, which could create an enviable network effect.

Craig-Hallum analyst Ryan Sigdahl pared his target on DraftKings stock to $60 from $70. He still rates the name a “buy” and says “aggressive” spending will pay off over the long term, as the operator emerges as one of the leaders in a market likely to be dominated by a small number of players.

In Defense of DraftKings

Some analysts are sticking by the beleaguered gaming equity. Cowen analyst Stephen Glagola raised revenue estimates on DraftKings while noting the company’s guidance for the second half of this year could prove conservative.

Canaccord Genuity’s Michael Graham also raised revenue estimates while maintaining an $80 forecast on DraftKings.

“We are encouraged by the favorable industry backdrop, as online sports betting legalization progress has accelerated across the country, and numerous recent strategic partnerships and acquisitions are helping DraftKings develop its media strategy and enhance its product offering,” said the analyst in a note to clients.

“Despite a competitive market, these factors give us confidence that significant top-line growth will persist as the US embraces online sports betting,” the note continued.