DraftKings Stock Soars as BofA Analyst Sees Inflection Point Nearing

Posted on: July 12, 2023, 01:13h. 

Last updated on: July 12, 2023, 01:48h.

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

DraftKings (NASDAQ: DKNG) extended its July rally Wednesday on the back of bullish comments from Bank of America analyst Shaun Kelley.

DraftKings Q1
Inside a DraftKings office. The stock extended its rally on Wednesday with the help of a Bank of America upgrade. (Image: Wall Street Journal)

In midday trading, the stock is higher by 5.32% on volume that’s already exceeded the daily average. That extends its gains over the past week to 16.56%, and its surge over the past month to nearly 22%. In a note to clients, Kelley upgraded DraftKings to “buy” from “hold” while boosting his price target on the shares to $35 from $25. That implies upside of 18.6% from the July 11 close.

While DKNG has outperformed in 2023, we think market share gains can drive both Q2 ’23 and near-term top line revisions (though likely anticipated) while cost leverage will likely drive bigger revisions in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and margins than anticipated,” wrote Kelley.

DraftKings is higher by 167% year-to-date. It’s a surge Kelley said is fueled in part by a more rapid pace of sports betting launches in the states approving the activity and the operator generating an increasingly larger sports wagering hold.

Good Time for DraftKings Stock Rally

There’s never a bad time for a stock to rally. But in the case of DraftKings, the recent move to the upside is particularly well-timed, because the Boston-based company is expected to deliver second-quarter results on August 4.

DraftKings soaring into its earnings could be a positive sign, particularly for a stock with a track record of making large moves following financial updates. On a related note, the last 20 earnings per share (EPS) revisions on the stock by analysts have been of the bullish variety. Kelley points to the operator’s ability to better manage costs, such as marketing and promotional spending, as a catalyst for the shares.

“DraftKings has also reached a key cost inflection in its young business model, as we believe the rate of growth in cost of revenue and external marketing have peaked,” added the analyst.

Kelley is also bullish on the growth trajectory of the online sports betting market in the US, noting it will grow 35% on a year-over-year basis in 2023. That’s while posting a compound annual growth rate of 15% from this year through 2027.

Wall Street Increasingly Bullish on DraftKings Stock

Kelley’s report adds to a spate of recently positive Wall Street commentary on DraftKings stock. Currently, 33 analysts cover the name, with 18 rating it the equivalent of “buy” or “strong buy.” The average price target is $28.74, which is below where the stock trades today, indicating there’s room for upside revisions to that number.

Speaking of upside potential, Oppenheimer bumped its price forecast on the gaming equity to $36 from $30 last week, while BTIG Research anointed DraftKings a top pick for the second half of 2023.

“DraftKings is expected to benefit from favorable fundamentals in 2023, including product improvements, an increasing parlay mix, a positive operating backdrop, and improved efficiency, which could drive significant upside in estimates and positive revisions,” according to BTIG.