DraftKings Rallies on Barclays Upgrade, Bank Sees US Growth Ahead

Posted on: February 23, 2024, 10:36h. 

Last updated on: February 23, 2024, 10:48h.

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

Shares of DraftKings (NASDAQ: DKNG) surged in early trading Friday, extending a run that’s seen the stock gain more than 10% over the past month. That’s after Barclays analyst Brandt Montour upgraded the gaming equity.

New York iGaming lottery online
A DraftKings Sportsbook advertisement above the Grand Central subway station in New York City. The stock rallied Friday on an upgrade from Barclays. (Image: Crain Communications)

In a note to clients today, Montour upgraded DraftKings to “overweight” from “equal weight,” while boosting his price target on the stock to $50 from $41. That new forecast implies upside of 22.4% from the Feb. 22 close.

We’re less concerned than we were 3-6 months ago over increased competition, and see the ~10% pullback off the highs post its (strong) 4Q report as an attractive near-term entry point,” observed the analyst.

Montour is among roughly 10 analysts who have boosted price targets on DraftKings over the past week. Of the 30 analysts covering the stock, 21 rate it “strong buy” or “buy.” The consensus price objective of $46.82 implies upside of 11.29% from current levels.

DraftKings Staying Power, Growth

In the ultra-competitive US sports wagering industry, DraftKings and rival FanDuel, a unit of Flutter Entertainment (NYSE: FLUT), have separated themselves from the pack, forming a duopoly that controls about 70% of the market.

As Montour notes, that implies DraftKings has significant “staying power” in that arena. But the operator’s leadership in the iGaming space is arguably underappreciated. In noting that online sports betting and internet casinos are “synergistic” with each other, the analyst lifted his total addressable market for those industries by 1% to 3% over the next several years.

Montour also hailed DraftKings’ recently announced $750 million cash/stock deal for online lottery provider Jackpocket as a transaction that could add incremental momentum. That acquisition is expected to close in the second half of this year.

“Jackpocket is the leading provider of digital lottery services in the U.S., with proprietary and highly-scalable technology, a strong brand, and an outstanding founder-led management team,” according to a statement issued by DraftKings earlier this month. “The Proposed Transaction will enable DraftKings to access and grow into the massive U.S. lottery industry. But more importantly, strengthen its position in Sportsbook and iGaming through higher customer lifetime value — based on demonstrated cross-sell capabilities — and an enhanced customer acquisition engine.”

Potent Parlays

Parlays, including those of the same-game variety, are another factor in Montour’s bullish case for DraftKings stock. The analyst noted same-game parlays can increase the operator’s profitability, bolster hold, and are among the reasons the company recently raised 2024 earnings and revenue guidance.

Operators such as DraftKings offer prepackaged same-game parlays with long odds that are hits with novice bettors. Clients can also build their own. Both scenarios work in favor of gaming companies

Many bettors take a lottery ticket mentality toward parlays, stacking legs in a quest for a big payday. Of course, the odds lengthen with each added leg, and that’s good for the sportsbook, not the bettor. Adding to the advantages of parlays for sportsbooks is the point that many bettors simply don’t understand the math behind these wagers.