DraftKings (DKNG) stock gains 7% on UBS upgrade
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Sports betting agency DraftKings (NASDAQ:DKNG) is up about 7% today. A UBS analyst has updated DKNG stock, although it has already more than doubled so far this year. Citing the company’s higher guidance for its Q1 2023 earnings release, the expert predicts further momentum.
Specifically, Barrons reported that Robin Farley had upgraded DKNG shares to “buy” from “neutral” in a Monday report. Additionally, it raised its price target from $19 to $30. On the face of it, the upward forecast seems incredibly ambitious given how well DraftKings have performed this year. Since the January open, the shares have gained about 133% of the stock’s value.
Still, on a research note, Farley noted that “further upsides are possible given the faster ramp-up in new states.” As a result, the analyst raised its 2023 revenue estimate to $3.19 billion from $2.91 billion, citing DraftKings’ higher forecast in its Q1 disclosure. Additionally, it raised revenue estimates for 2024 and 2025 to $3.94 billion and $4.81 billion, respectively.
Additionally, Farley forecasts revenue growth at a compound annual growth rate (CAGR) of more than 20% from 2023 to 2026. This past year could “be the first full year of consistent profitability” based on EBITDA.
Growth will likely come from the accelerated pace of DraftKings entering new states, increased structural retention (percentages of bets retained by sportsbooks), and increased gross gaming revenue per player.
DKNG Stock still has its detractors
Although DKNG stock looks incredibly compelling due to its stratospheric performance – both in the year so far and in the past 365 days – it’s not without concern. At its peak, DKNG had a weekly average price of nearly $72 (as of March 2021). While hitting the projected $30 is a significant accomplishment, it would still be well outside the zenith of DraftKings.
In addition, DKNG’s actions are criticized. In particular, JPMorgan Chase analyst Joseph Greff in November 2022 downgraded his view from “underweight” (the equivalent of selling) to “neutral”. At the time, DraftKings released its 2023 adjusted loss for EBITDA between $475 million and $575 million in its third quarter call. However, Greff mentioned that it was worse than the $350 million loss he had expected.
For the analyst, this forecast raised alarm bells as industry rivals mentioned that the digital sports betting segment will represent positive contributors in the future. Certainly, in the Q1 2023 disclosure, DraftKings improved its EBITDA loss to $315 million. Still, Greff reiterated his “underweight” rating with a price target of $18.
Beyond analyst disagreements, DraftKings must strike a delicate balance with its clients. Obviously, if its customers do too well on the platform, the company limits its potential for profitability. However, if they are badly beaten, DraftKings should look for new customers. This dynamic could affect DKNG’s stock as the company enters an economically vulnerable cycle.
why is it important
So far, TipRanks shows that Wall Street analysts view DKNG stock as a Moderate Buy. This assessment breaks down into 16 buys, eight catches and two sells. However, the average price target sits at $26.33, implying only around 2.5% upside potential.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.