DraftKings Stock Sagging, But Guggenheim Sees Upside Coming


DraftKings (NASDAQ:DKNG) stock is mired in a slump. But that’s not preventing some analysts from sticking with or starting new bullish outlooks on the name.

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A DraftKings sign in Boston. Guggenheim analyst Curry Baker sees big upside for the stock. (Image: Boston Globe)

Guggenheim analyst Curry Baker initiated coverage of the sportsbook operator today with a “buy” rating and a $75 price target. That’s slightly above the Wall Street consensus of $73.27, but still implies potential upside of 30.5 percent from the April 29 close. In what’s one of the rosier forecasts to date, Baker says the combined North American iGaming and online sports betting markets could eventually be worth $70 billion, with DraftKings commanding a sizable chunk.

We have applied, in our opinion, reasonable legalization and market share assumptions to each of these [total addressable markets] to derive our long-term North American revenue outlook for DraftKings of $7.6 billion to $10.6 billion,” said the analyst in a note to clients.

That’s cheery commentary on DraftKings, which is off 5.80 percent over the past month and resides 23.60 percent below its 52-week high. Declines of 20 percent or more from recent highs are considered bear markets.

Reasons for Concern with DraftKings Stock

Over the past year, sports betting equities rallied as more states legalized the activity, with Wall Street frequently citing a favorable legislative environment as a primary catalyst for stocks such as DraftKings.

However, the market remains fiercely competitive. While the Boston-based company is the second-largest online sportsbook operator in the US, behind only FanDuel, and enjoys superior brand recognition, some investors worry the company’s marketing spending is too high. That’s while market observers see evidence DraftKings is losing market share in some marquee states.

DraftKings’ gross gaming revenue (GGR) share in recent months in vital internet casino and sports wagering markets “is trending at or below its trailing 6-12 month averages in those markets, per our estimates. We wonder whether the emergence of BetMGM (and its aggressive bonusing strategy) over that same time period has had a major impact — and how long such an impact might last,” said Eilers & Krejcik in the most recent edition of its bi-weekly EKG Line report.

DraftKings Still Has Catalysts

Baker, the Guggenheim analyst, forecasts 70 percent of the US population having access to regulated online sports betting by 2025 – an obvious catalyst for equities such as DraftKings. While concerns about market share are unlikely to dissipate over the near term, the company has avenues for effectively adding new bettors.

“DraftKings has a paid daily fantasy sports (DFS) user base of ~5 million unique paid customers, which provide an immediate cohort to target when a new state launches. Over 60% of active DFS players have been cross-sold into online sports betting or iGaming during the first 12-18 months of a new state launching,” said Baker.

DraftKings stock could be propelled by other catalysts, including the company’s efforts to bolster its technology stack and its move into the media realm. Both jibe with its efforts to become a vertically integrated operator.

“Beyond the momentum towards legalization and the inherent tailwinds new states/markets offer, we see several other competitive advantages underpinning our positive outlook for DraftKings,” said Guggenheim’s Baker.

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