Shares of DraftKings (NASDAQ: DKNG) closed decrease by nearly 1% as we speak, however some sell-side analysts stay bullish on the inventory regardless of a lack of 18.29% over the previous 90 days.
A DraftKings billboard seems at Occasions Sq. in New York Metropolis. An analyst known as the inventory a high concept for the second half.(Picture: NASDAQ)
In a observe to purchasers as we speak, Stifel analyst Jeffrey Stantial rated DraftKings a “purchase’ with a $50 value goal, implying upside of 34.8% from as we speak’s closing value whereas noting the inventory is a high choose for the second half of 2024. He identified that headwinds such because the just lately carried out tax hike in Illinois are priced into the shares.
We see well-discussed headwinds to 2Q24/2024E Consensus (IL tax hike; Jackpocket drag) as de-risked following latest revisions, with wholesome core progress drivers (evidenced by latest state reported GGR trends) posing potential upside to reset buyside expectations,” wrote the analyst.
Illinois accepted a graduated tax price on on-line sports activities betting operators, forcing the most important sportsbooks within the state to pay greater percentages. Beneath the plan, which into impact on July 1, Illinois now has the second-highest sports activities betting taxes within the nation and the speed utilized to massive operators comparable to DraftKings and FanDuel dad or mum Flutter Leisure (NYSE: FLUT) seemingly greater than doubled.
Deal with DraftKings Free Money Move, Says Stifel
Based mostly on prior reporting patterns, it’s estimated that DraftKings will ship second-quarter outcomes on Aug. 1. One of many massive points analysts and traders will probably be monitoring is free money movement.
The gaming firm has been free money movement unfavourable, however has made considerably strides on that entrance over the previous three quarters. Final 12 months, the operator was free money movement unfavourable to the tune of $103.03 million, however that was a marked enchancment from the -$721.95 million posted in 2022, according to Macrotrends data.
DraftKings is about 4 years faraway from changing into a standalone publicly traded firm, which means it’s nonetheless a younger agency. Nonetheless, there’s growing chatter amongst sell-side analysts that with free money movement inflecting on the gaming firm, return of capital to shareholders could possibly be introduced over the close to time period. Stantial sees that as a chance.
“DKNG’s forthcoming capital allocation replace (and sure preliminary return of capital) must also sign confidence in out-year FCF technology. All-told, we see a compelling setup heading into 2H24, and suggest traders personal into DKNG’s Q2 print,” famous the Stifel analyst.
The analyst stated a share buyback would seemingly be DraftKings’ most popular avenue of returning capital to traders and that the operator is unlikely to pursue large-scale mergers and acquisitions and worldwide growth over the near-term.
State Information Encouraging for DraftKings
Whereas 2024 has been and can seemingly finish to be a dud by way of state-level growth of on-line sports activities betting and iGaming, that issue is probably going priced into sports activities betting equities. Particular to DraftKings, there may be encouraging information within the type of rising market share in some states.
“We proceed to see seemingly upside bias to DraftKings’ core worth drivers — particularly consumer acquisition & monetization. Per state-reported information (see reveals 1-6), U.S. same-state on-line sports activities betting deal with progress accelerated to +24%/+29% year-over-year in April/Could (vs. +17% Q1) with DKNG gaining market share sequentially in each months (although early June information suggests some reversion),” added Stantial.
The analyst additionally famous that many new DraftKings purchasers are seemingly informal bettors – a demographic susceptible to lottery-style wagering and thus greater holds for operators.
