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Sports wagering stocks, including DraftKings (NASDAQ: DKNG), are a relatively young asset class, but youth aside, the group is subject to clear seasonal trends. Those include the start of football season often acting as catalyst.
Prosaic as that thesis is and it is, it’s also sensible because football is the most wagered on sport in the US. The 2024 football season will be DraftKings’ fifth as a freestanding public company. Over the prior four, the stock’s average gain was 5% from the start of the NFL campaign through the Super Bowl, according to Dow Jones Market Data.
DraftKings stock has been a battleground of late, but the shares may already be pricing in football season optimism as highlighted by a 10.69% gain over the past week. Some analysts believe the recent punishment endured by the gaming stock could signal a pre-football season buying opportunity.
With the 2024 NFL season starting on September 5th and DKNG’s share price down 32% from its $50 high in March, this year’s potential return over this seasonally significant window could be meaningful,” wrote Benchmark analyst Mike Hickey in new report to clients.
He reiterated a “buy” rating on DraftKings with a $44 price target, implying upside of 26.4% from today’s closing price. The analyst called the gaming name a “top idea.”
Football, Free Cash Flow Could Boost DraftKings Stock
Football and a robust free cash flow path are among the potential catalysts for DraftKings and there may be more to the story.
“DKNGs’ improved outlook, fueled by stronger market win margins in Q3, new user growth, traditional tax mitigation strategies, and valuation contraction ahead of the NFL season, creates an attractive entry point,” adds Hickey.
On the other hand, the biggest obstacle to near-term upside for the stock could be the court of public opinion. Recent news flow for DraftKings has been largely negative, including a now scrapped plan to tax winning bets in select high-tax states. That effort was dropped seemingly only because rival FanDuel wouldn’t follow along.
Then there was news that the gaming firm is shuttering its nonfungible token (NFT) marketplace and halting the Reignmakers fantasy sports game because of legal issues. Additionally, DraftKings recently sold Vegas Sports Information Network (VSiN) and it’s rumored that the sale price was pennies-on-the-dollar compared to the $70 million the gaming company paid for the radio network in 2021.
“DKNG has turned into a battleground stock,” wrote Needham analyst Bernie McTernan in a recent report to clients.
Analysts Still Bullish on DraftKings Stock
While “battleground” is an accurate description of the current state of affairs with DraftKings, Wall Street remains mostly constructive on the shares.
“Within this market, we believe DKNG has a sustainable customer acquisition strategy that should continue to drive its first- or second-place position in all states,” McTernan noted. “We expect margins to scale with from tech stack ownership, benefits of national vs local marketing and reaching terminal market access penetration.”
In a report out earlier Tuesday, Oppenheimer placed DraftKings on its list of top equity ideas for August and September. Those 32 stocks could outperform over the next year.
“The company [will be] a critical player in accelerating the shift in U.S. sports betting from about $150B wagered illegally/offshore to licensed domestic operators,” said Oppenheimer of DraftKings.
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