A roughly 10% pullback in DraftKings Inc.’s stock following last week’s earnings report has caught the attention of analysts. Barclays’ Brandt Montour sees this dip as an “attractive” entry point for investors, prompting him to upgrade the stock to overweight from equal weight.
Position in iGaming Business
Montour highlights DraftKings’ “underappreciated” position in the iGaming business, emphasizing the company’s success in online casino games and cross-selling efforts. With a rapidly improving slate of slots content, DraftKings stands to capitalize on the potential growth of this highly profitable market.
Sports-Betting Traction
The online-gambling company also has ample opportunity to capitalize on sports-betting traction, particularly through parlays which Montour describes as “the gift that keeps on giving (to sports books).” DraftKings shares were up 3% in Friday’s premarket action, signaling potential interest from investors.
Growth Potential
Montour is particularly excited about the growth potential within the digital gaming industry, citing the sizable total addressable market in legal jurisdictions and continued 15-25% growth in the most mature state. As more states move to legalize online gambling and sports betting, DraftKings stands to be a primary beneficiary of this trend.
DraftKings’ Success in Structural Hold and Parlays
A significant portion of DKNG’s recent beat and raises has been attributed to its improved structural hold, driven by a greater mix of higher-hold products like multi-leg parlays. In the world of sports betting, hold refers to the amount of money retained by sportsbooks, while parlays involve placing a series of bets together.
Anticipated Growth in Parlays
Analyst Montour foresees a continued increase in the popularity of parlays among U.S. betting consumers. He attributes this growth to the attractive long-shot odds of the product, along with its ability to enhance engagement for the average sports viewer. Montour also pointed out that DraftKings enhanced its parlay product last year.
Positive Outlook and Price Target
In a recent report, Montour raised his price target for DraftKings from $41 to $50. He mentioned that this new target suggests shares could trade at approximately 25 times the enterprise value to estimated 2025 earnings before interest, taxes, depreciation, and amortization. In his view, this valuation appears fair within the broader internet landscape.
DraftKings: A Top Player in the Market
Montour emphasized that DraftKings stands out as a clear top-two player that is rapidly increasing profitability. Additionally, he highlighted that DraftKings is positioned as the only pure-play scaled U.S. player for the foreseeable future.