DraftKings Stock Surges as Analysts Rush to Lift Price Targets

Posted on: May 6, 2024, 04:43h. 

Last updated on: May 7, 2024, 08:56h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Following a surprise sell-off Friday on the back of a strong first-quarter earnings report, DraftKings (NASDAQ: DKNG) recouped those losses Monday as a slew of analysts boosted price targets on the high-flying stock.

On above-average volume, DraftKings gained 5.4% to start the week after at least six analysts lifted price forecasts on the gaming company. That followed at least three such instances over the weekend. While he didn’t join his colleagues in increasing a price target on DraftKings, Macquarie analyst Chad Beynon reiterated an “outperform” rating and $54 price objective on the stock. That implies upside of almost 22.7% from Monday’s close.

Beynon pointed to DraftKings getting a handle on expenses as well as the operator’s compelling free cash flow (FCF) traits as among the reasons for his bullish view.

Most important, in our view, DKNG continues to hold share (~30%) in a market that continues to grow,” observed Beynon. “Bottom line, we don’t believe there are risks to DKNG’s 15-30% multi-year top-line growth path, and we believe its data analytic capabilities bode well for adjacent markets. Off or our ’26E earnings before interest, taxes, depreciation, and amortization, DKNG trades at 13.3x.”

Last week, the gaming company posted an unexpected first-quarter profit on the basis of non-generally accepted accounting principles (non-GAAP) while boosting the midpoint of its 2024 EBITDA and revenue guidance.

DraftKings Stock Offers ‘Constructive Setup’

In addition to management’s ability to rein in costs, DraftKings has been one of the best-performing gaming stocks since the start of 2023 because the operator allayed concerns about profitability, cash burn, and valuation.

“We continue to see a constructive setup into the remainder of 2024 as underlying fundamentals remain healthy (with runway left, in our view), Jackpocket cross-sell should prove a material uplift, and DraftKings’ capital allocation update at Q2 earnings may include initial return of capital,” he wrote in a report to clients.

Stantial, who reiterated a “buy” rating on the stock while raising his price target to $51 from $50, said it’s possible that when DraftKings reports second-quarter earnings, the company could unveil some form of capital return to shareholders, though he didn’t say if buybacks or dividends were more likely.

Cross-Selling Catalyst for DraftKings Stock, Too

DraftKings has an established history of cross-selling new offerings to clients. It was successful in transitioning many daily fantasy sports (DFS) competitors to online sports betting and it’s recognized similar benefits by marketing iGaming to sports bettors in the five states in which it offers the former.

“We see tailwinds here persisting at minimum through the remainder of 2024, with upside thereafter as management executes on an attractive & untapped cross-sell opportunity with Jackpocket,” said the Stifel analyst.