In a pair of the most important states the place cellular sports activities betting is on the market, DraftKings (NASDAQ: DKNG) and Penn Leisure’s (NASDAQ: PENN) ESPN Guess are grabbing market share whereas rivals BetMGM and Caesars Sportsbook battle.
Kevin Hart in a DraftKings business. The corporate is including market share in Michigan and Pennsylvania, based on Morningstar. (Picture: DraftKings)
In a latest report, Morningstar analyst Dan Wasiolek famous ESPN Guess averaged income enchancment of seven% and 4%, respectively in Michigan and Pennsylvania, in February in comparison with the year-earlier interval when Penn operated sports activities wagering underneath the Barstool Sportsbook model. He added that ESPN Guess now has a excessive single-digit share in each states, and it seems a few of that got here on the expense of opponents.
In the meantime, MGM’s share over the identical time is decrease by 3 and 5 share factors; Caesars’ is flat and down 3 share factors; and smaller opponents are collectively decrease by 3 and three share factors,” noticed Wasiolek.
Michigan and Pennsylvania are vital states for any cellular sportsbook operator. For the reason that Supreme Courtroom struck down the Skilled and Beginner Sports activities Safety Act (PASPA) in 2018, simply 4 states have outpaced Pennsylvania by way of sports activities betting deal with and income. Michigan is tenth on that listing regardless of cellular sports activities wagering being authorized there for simply over three years.
DraftKings Cementing Management in Large States
DraftKings vies with Flutter Leisure’s (NYSE: FLUT) FanDuel for the highest spot by way of US on-line sportsbook market share and within the bulk of the states through which each operators conduct companies, they’re first and second, properly forward of their rivals.
“Primarily based on knowledge from these states, we have now elevated confidence in DraftKings’ intermediate income alternative and have elevated our 2024-28 gross sales compound annual progress fee (CAGR) to 24% progress from 23%, resulting in a carry in its valuation to $47 per share from $44,” wrote the analyst. “We expect traders ought to hold DraftKings shares on their radar for any pullbacks beneath our valuation.”
Wasiolek is much less optimistic on Caesars Leisure’s (NASDAQ: CZR) digital unit, noting it could possibly be tough for that phase to realize earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) targets attributable to decrease share gross sales in Michigan and Pennsylvania.
“Consequently, we now count on Caesars’ digital margins to common low-20% through the subsequent 10 years, down from the mid-20s, driving our honest worth estimate to $73 per share from $75,” mentioned Wasiolek.
Cautious Optimism on ESPN Guess
To its credit score, Penn’s ESPN Guess has carried out admirably since its debut final November, and its means to seize share from non-DraftKings/FanDuel rivals may allay investor issues relating to the app’s efficiency in states the place opponents have been entrenched for a number of years.
Wasiolek sees some worth in Penn shares, although he’s cautious concerning the regional on line casino big’s debt burden.
“Penn’s $24 honest worth estimate gives traders a sexy entry level to an rising participant within the rising sports activities betting market, with the caveat that its extra leveraged stability sheet may hold shares unstable amid enduring excessive financing prices,” concluded the analyst.
