DraftKings’ Risk Profile Is ‘Highly Favorable.’ That’s Why It’s a Buy, Analyst Says.
Interior views at DraftKings Sportsbook Manchester in Manchester, New Hampshire.
Scott Eisen/Getty Images for DraftKings
As online sports betting continues to gain traction in new state markets, it may be time to revisit DraftKings , said Jefferies analyst David Katz.
Katz reinstated coverage of DraftKings (ticker: DKNG
) at a Buy on Monday, saying the current risk/reward was “highly favorable.”
“We maintain DKNG is among the best positioned with a strong brand, first-mover advantage, resources, and strategic clarity,” he wrote in a research note.
DraftKings stock was flat at $12.61 on Monday. The shares have lost 54% this year.
Over the last few months, sentiment on online sports betting companies has waned due to concerns over increasing competition in the sector and the magnitude of cash burn. It doesn’t help that betting companies have been struggling to reach profitability.
In the case of DraftKings, there have been additional worries that the company has higher-than-expected marketing costs, impacting its path to profitability. But Katz believes that marketing aside, the stock could see upside soon. For one, he believes concerns over cash burn are “overblown,” with the current cash balance sufficient to support further growth.
Importantly, Katz said, the company should have sufficient funding to move into California and Florida, two states that seem poised to legalize online sports betting. Katz estimated that the company could launch operations in California as early as 2023, with Florida following shortly after.
In addition, the recent acquisition of Golden Nugget Online Gaming should help DraftKings acquire a larger share of the iGaming market, which could exact meaningful synergies from revenue and marketing spend, Katz added.
Wall Street remains fairly bullish on DraftKings, with 58% of analysts rating it a Buy and 42% rating it a Hold. Earlier this year, Argus Research downgraded the shares to Hold due to competition concerns and slowing revenue growth.
Write to Sabrina Escobar at [email protected]
