DraftKings benefits from a 'gift that keeps on giving.' Its stock has a new fan.
By Emily Bary
DraftKings' stock picks up an upgrade at Barclays, with analyst cheering potential in online casino games, parlay bets
A roughly 10% pullback in DraftKings Inc.'s stock following last week's earnings report makes for an "attractive" entry point, according to one analyst.
Barclays' Brandt Montour upgraded the stock to overweight from equal weight Friday, writing that the online-gambling company has an "underappreciated" position in the iGaming business as well as ample opportunity to capitalize on sports-betting traction.
DraftKings shares (DKNG) were up 3% in Friday's premarket action.
See also: Why DraftKings bulls are cheering, even after a rare earnings miss
In iGaming, which includes online casino games, DraftKings has been "rapidly improving" its slate of slots content while succeeding with cross-selling efforts, Montour said.
"The potential growth of this highly profitable and nascent market is what we are perhaps most excited about within digital gaming, based on sizable a [total addressable market] today on just three legal jurisdictions of size and continued 15-25% growth from the most mature state," Montour wrote.
The company stands to be "a primary beneficiary" as more states move to legalize the activity.
Read: Why Apple's new Sports app could be bad news for Google
Meanwhile, in online sports betting, Montour called parlays "the gift that keeps on giving (to sports books)."
"A good chunk of DKNG's beat and raises over the past few quarters have been driven by better structural hold, driven by greater mix of higher hold products like multi-leg parlays," he wrote. Hold refers to the amount of money sports books retain, while parlays represent a series of bets placed together.
Montour said he anticipates "continued uptake of parlays by the U.S. betting consumer, based on the appealing long shot odds nature of product, coupled with its ability to drive more depth in engagement for the average sports viewer." He noted that DraftKings improved its parlay product last year.
See also: Why DraftKings made $8 million and BetMGM lost nearly $5 million on Super Bowl bets in New York
He lifted his price target to $50 from $41 in his latest report and said the new target implies shares could trade at about 25 times enterprise value to estimated 2025 earnings before interest, taxes, depreciation and amortization. That "seems more than fair within this broader internet context," according to Montour.
He added that DraftKings is "a clear top 2 player rapidly ramping profitability, and will be the only pure-play scaled U.S. player for the foreseeable future."
-Emily Bary
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
02-23-24 0855ET
Copyright (c) 2024 Dow Jones & Company, Inc.-
What’s Happening in the Markets This Week
-
Worst-Performing Stock ETFs of the Quarter
-
Q3 in Review and Q4 2024 Market Outlook
-
Top-Performing Stock ETFs of the Quarter
-
September Jobs Report Forecasts Show Moderate Hiring Gains
-
Port Strike a Headache for Shippers but a Potential Tailwind for Certain US Transport Stocks
-
13 Charts on Q3′s Roller-Coaster Rally for Stocks and Bonds
-
5 Stocks to Buy Instead of Overpriced US Equities
-
Consumer Defensives: Despite Angst, Thirsty Investors Have Names to Pursue
-
Industrials: Many Stocks Overvalued After Q3 Outperformance
-
Basic Materials: Despite Index Rise, We See Multiple Long-Term Opportunities
-
What the Election Could Mean for Big Tech Stocks
-
3 Lessons From Recent Stock Market Drama
-
Consumer Cyclicals: Even Amid Moderating Consumer Spending, We See Discounts
-
Healthcare: Valuations Look Fair Overall, With Select Industries Still Undervalued
-
Utilities: Falling Interest Rates, Growth Outlook Boosting Stocks