The future is looking bright for DraftKings (DKNG), at least according to Jefferies.
In a new note, analysts reinstated a buy rating for the stock with a 52-week price target of $33.
With DraftKings currently sitting under $13, near the company's lowest value since the March 2020 pandemic-sparked sell-off, Jefferies' price target indicates a potential upside of roughly 150%.
“While we recognize the marketing intensity exceeded our initial expectations, we maintain DKNG is among the best-positioned with a strong brand, first-mover advantage, resources, and strategic clarity,” Jefferies said in its note.
DraftKings stock has lost over half of its value since the beginning of the year as the overall market has navigated another sell-off, including most notably unprofitable tech companies. DraftKings stock is down 53.5% so far this year.
The online sports gambling company isn’t alone: Penn National, MGM Resorts, Caesars Entertainment, and FanDuel parent company Flutter Entertainment are all down significantly year-to-date. The negative market action follows a slew of sports gambling record handle beats fueled by elaborate market spending.
DraftKings recently reported mixed first-quarter results when stacked against Wall Street estimates and improved its adjusted EBITDA projections for the full year. The company now projects a loss between $760-$840 million in 2022. According to the Jefferies analysts, those losses will continue to lessen given the current layout for legalization and remains bullish on the equity moving forward.
Through three months in New York, DraftKings has owned about 24% of the mobile sports wagering gross gaming revenue, placing it third among companies in the space. With the addition of Golden Nugget Online and a further push into iGaming, Jefferies sees value in the company moving forward.
“We expect DKNG to make thoughtful but aggressive decisions,” the note stated. “We believe the business has and should continue to grow in North America and GNOG (Golden Nugget Online) should provide a valuable engine in iGaming. We believe the prevailing bear case in the market, that DKNG is heading toward a funding crunch is least likely and Mgt. could either provide more specific guidance to this end or prove it out over the longer term. Either would result in the stock achieving significant upside from present levels.”
Sports gambling is currently live and legal in 30 states with seven states currently waiting on active or pre-filed legislation, according to the American Gaming Association. Jefferies' base case predicts DraftKings entering Maryland and Ohio in 2023, which would make the platform available to about 42% of the total U.S. population.
The country's largest states California, Texas and Florida — where mobile sports gambling isn't legal but could come in the near future — are also being closely watched by Jefferies. Assuming only California is added in 2023 (the state recently added sports gambling to the upcoming 2022 election ballot), DraftKings has the cash available to open in California without seeking alternative funding and thus not stunting the growth story.
“DKNG should have sufficient funding to execute on CA, which lies reasonably ahead,” Jefferies analysts said. “FL is possible as well, which could present a more minor funding challenge, while TX is somewhat less relevant and unlikely to occur in the next two years by our research. It is also possible that DKNG could manage its burn rate lower with more marketing efficiency as the company reaches critical mass or alter its playbook to invest in a more disciplined manner.”
Josh is a producer for Yahoo Finance.