DraftKings Draws Applause as Analysts Fawn Over ESPN Agreement

Posted on: September 15, 2020, 09:37h. 

Last updated on: September 15, 2020, 10:35h.

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

DraftKings (NASDAQ:DKNG) stock is trying to extend a rally that started Monday, fueled by news of a wide-ranging agreement with ESPN.

DraftKings Book ESPN
The DraftKings sportsbook at Del Lago in Upstate New York. Analysts are loving the stock and boosting price targets. (Image: Finger Lakes Daily News)

Today, sell-side analysts are chiming in on the deal, stoking elevated activity in the sportsbook operator’s equity. In midday trading, volume in DraftKings is roughly 35 percent above the daily average. That’s as the stock flirts with $50 for the first time since its late April debut, adding to a surge that’s seen the name jump more than 31 percent over the past week.

As Benchmark Company analyst Mike Hickey points out, the ESPN news is the latest in a recent string of notable headlines generated by DraftKings.

DKNG announced a new deal with ESPN to be the co-exclusive sportsbook link-out provider, prior brand- building deals included Michael Jordan and the Chicago Cubs; all of which are elevating the DKNG brand and further legitimizing sports betting, in our view,” said the analyst.

Hickey lifts his price target on DraftKings stock to $57 from $45, implying upside of more than 15 percent from where it resides at this writing.

Wait, There’s More

On Monday, the daily fantasy sports (DFS) company joined rival Caesars Entertainment (NASDAQ:CZR) in revealing multi-year agreements with ESPN, whereby links to the gaming companies’ sportsbooks will be featured on ESPN.com, as well as the network’s mobile app and fantasy sports offerings.

DraftKings becomes the broadcaster’s exclusive DFS provider and co-exclusive sportsbook partner. Though both stocks soared yesterday on the news, some on Wall Street believe it’s a bigger win for DraftKings, because the company’s expanded relationship with ESPN dilutes a previous, similar deal the network had with Caesars.

Hickey, the Benchmark analyst, sees other catalysts for the equity, including expanded online sports betting (OSB) and this month’s massive sports calendar.

“We believe the virus influence will provide a significant boost to player engagement in F3Q20, as evidence by New Jersey August OSB performance and the unprecedented professional sports play in September,” he said in a note to clients. “Further growth should be realized from new states expected to go live in coming months.”

Big Advantages

Other analysts see DraftKings and rival FanDuel, which is controlled by Flutter Entertainment, benefiting from traits old guard casino operators lack, including brand loyalty and technology proficiency.

“The key takeaways are that DKNG and FLTR’s Fanduel are benefiting from significant built-in advantages that are difficult for legacy casinos to compete with,” said Oppenheimer analyst Jed Kelly.

Kelly acknowledges an emerging competitive threat in the form of Penn National Gaming’s (NASDAQ:PENN) relationship with Barstool Sports. But he still boosts his price forecast on DraftKings to $55.

Other research firms are bullish on DraftKings, but in cautious fashion. They note that multiples on the name are stretched given what’s likely a lengthy time line to profitability.