not vested
DraftKings (DKNG)
DraftKings is a digital sports entertainment and gaming company, that provides online daily fantasy sports (DFS), online sports betting (OSB) and iGaming.
With the return of major league sports, the analyst community thinks additional growth is in store on top of the 219% year-to-date gain it has already posted.
Four-star analyst Mike Hickey, of Benchmark, cites its “leading brand and market share in DFS, a potentially massive and accelerating addressable market from OSB and iGaming state legalization initiatives and solid financial position,” as the key components of his bullish thesis.
DKNG is the dominant player in the DFS space, and it was one of the early leaders to emerge in OSB and iGaming. According to Hickey, both OSB and iGaming are “nascent markets that have the potential to be multi-billion dollar domestic opportunities.”
He also points out that DKNG boasts a “differentiated gaming engine that enhances operating margins and serves as a platform for future offerings, including in-game betting.”
Additionally, the market is expanding at a rapid pace, with sports betting currently legal in 23 states, representing 41% of the population.
OSB is legal in 14 states (24% of the population) and OSB is live or operational in 10 states, (15% of the population).
Given the legalization efforts in several parts of the U.S., Hickey estimates the online sports betting market could have an $18.6 billion-plus TAM. He added, “We expect legalization efforts to accelerate as cash-strapped state’s look for additional revenue sources to fill budget gaps from the pandemic-induced recession.”
When it comes to the iGaming market, Hickey believes that although legalization has been slower, it could achieve a $17.7 billion-plus TAM in the U.S.
“We estimate that four states have legalized iGaming, DKNG is operational in NJ, PA and WV, and we suspect the company is working with regulators to open iGaming in MI.
Similar to OSB, we believe legalization could accelerate given the current recession and looming state budget gaps,” the analyst explained.
Should 65% OSB legalization and 30% iGaming legalization be achieved by FY25, Hickey estimates DKNG will generate $3.7 billion in sales and $1.1 billion in adjusted EBITDA by FY30.
On top of this, the company’s balance sheet is solid, with its adjusted cash balance landing at roughly $1.3-$1.4 billion. Its estimated monthly cash burn would be around $15-$20 million if professional sports were halted.
With Hickey’s premium target multiple reflecting “the company’s elevated near-term revenue growth opportunity and margin potential,” the deal is sealed.
To this end, he rates the stock a Buy and has a $47 price target on it. The implication for investors? Upside potential of 38%.
Judging by the consensus breakdown, other analysts also like what they’re seeing. 11 Buys and a lone Hold add up to a Strong Buy consensus rating. At $47, the average price target is identical to Hickey’s.
Source: TipRanks