There’s a lot to like about
according to an analyst at J.P. Morgan. It just isn’t enough to recommend buying the stock.
DraftKings shares (ticker: DKNG) have soared about 195% since the company went public in April via a merger with Diamond Eagle Acquisition, a special-purpose acquisition company. The company has emerged as a popular play as legal online betting has expanded in the U.S.
J.P. Morgan analyst Daniel Politzer launched coverage on the stock with a Neutral rating and $48 price target. Though he likes DraftKings’ position as a leader with advantages in terms of scale in a fast-growing industry, he said the company’s valuation may not be sustainable amid rising competition. The company’s enterprise value is about 7.6 times estimated 2025 sales.
Politzer thinks the stock’s performance and relatively high multiple, “reflect its scarcity value” as the largest and most liquid pure play in the U.S. sports betting and iGaming industry. The latter is a term for online casino gambling, which bulls believe can attract customers that come in through sports betting.
Still, he wrote, the stock is, “acting more as a vehicle for investor sentiment/enthusiasm than closely reflecting fundamentals.”
That could change as other firms in the space go public—something that could lead to more scrutiny of DraftKings’ growth and profitability.
Politzer forecasts 2025 revenues of $9.2 billion for U.S. sports betting and $4.9 billion for iGaming. He assumes sports betting will be legal in 36 jurisdictions that represent 71% of the U.S. population, up from 45% at the moment. He expects the company to report positive earnings before interest, taxes, depreciation, and amortization in 2024—though that depends on which states launch legal online sports betting.
“If the number of states that legalize and launch sports betting falls short of our estimate, or if states legalize sports betting but do not regulate it in a revenue-maximizing manner (e.g., online sports betting, remote registration, multiple skins/operators, etc.), out-year industry and DKNG revenues may fall short of our forecasts, posing downside risk to our estimates and DKNG’s stock,” he wrote.
DraftKings stock was up 1.5% to $49.99 Monday morning, while the
index was down about 0.2%.
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