Positivity is at a premium for DraftKings (NASDAQ:DKNG). However sentiment could possibly be shifting for the higher on the beleaguered gaming inventory.
Jefferies analyst David Katz in a 2020 CNBC interview. He sees causes to be optimistic on DraftKings inventory. (Picture: CNBC)
That’s in accordance with Jefferies analyst David Katz, who got here away from current conferences with DraftKings senior administration considerably upbeat on the shares. He reiterates a “purchase” score and $33 value goal on the inventory — calls he revealed final week.
Of explicit significance for DraftKings traders, owing to the corporate’s standing as a money-losing entity and one with a prolonged time line to profitability, Katz notes the sportsbook operator elevating exterior capital is “not a possible consequence.”
That’s essential on a number of ranges, not the least of which is that that is an inopportune time for DraftKings to faucet capital markets. The corporate’s selections for elevating money possible boil right down to promoting company debt or issuing extra shares, neither of which is interesting. Traders are hoping Katz is appropriate in assuming the gaming operator gained’t imminently increase money, as a result of a bond difficulty would virtually definitely be rated junk, thus carrying a excessive rate of interest. Likewise, traders’ tolerance for dilutive fairness gross sales is sporting skinny.
For DraftKings, Potential California Catalyst
As Katz notes, California looms as a doable spark for DraftKings inventory — sentiment related to different on-line sportsbook operators.
Nonetheless, issues aren’t cut-and-dry for gaming corporations within the largest state. In November, voters there’ll determine on two competing sports activities wagering propositions — one supported by tribal on line casino entities, and the opposite again by industrial operators, together with DraftKings.
As is commonly the case with tribal gaming entities, these in California are balking at the potential for new competitors threatening their turf. Whereas the tribal proposal solely offers for in-person sports activities betting at casinos and a choose group of racetracks, that poll proposition is presently forward within the polls, and people operators have deep pockets with which to spend within the state’s expensive media markets.
Some analysts are additionally envisioning a situation through which each poll initiatives move. That might arrange a contentious and, extra importantly, prolonged authorized battle between industrial gaming corporations and tribal opponents in California.
Nonetheless, Jefferies’ Katz sees the state as a doable catalyst for DraftKings inventory, noting California “could possibly be among the many best up to now given the dimensions and mannequin.”
Specializing in Different New Markets
The analyst says DraftKings’ near-term outlook facilities round profitability and value efficiencies in markets through which it’s established and new market entries.
The corporate is sort of every week faraway from debuting in Ontario, Canada. Within the US, trade observers and traders are hoping Maryland and Ohio will be part of the regulated sports activities betting social gathering upfront of the 2022 soccer season. However that may be asking an excessive amount of.
Particular to DraftKings, the funding neighborhood shall be monitoring the mixing of the lately accomplished Golden Nugget On-line Gaming (GNOG) acquisition, and if that deal pays off by way of elevated web on line casino market share.
