DraftKings Analyst Turns Bullish As Competition Risk Falls: 'Finally Time To Take The Over'

Sports betting operator DraftKings Inc (NASDAQ:DKNG) received an upgrade from Stifel analyst Jeffrey A. Stantial. The move comes amid the NFL playoffs and ahead of Super Bowl LVIII.

The DraftKings Analyst: Stantial upgraded shares of the Boston-based company from Hold to Buy. He also raised the price target from $40 to $45.

Related Link: DraftKings Q3 Earnings Highlights: Shares Climb On Revenue, EPS Beat; Company Raises 2023 Guidance, Provides Initial 2024 Guidance

The Analyst Takeaways: Stantial cites same-state handle growth, hold-rate expansion, marketing discipline and EBITDA upside as reasons for the upgrade.

"We take advantage of the slight correction, as we argue near-term share headwinds are fading," Stantial said.

It’s "time to take the over" on DraftKings, Stantial said, referring to the act of betting on teams to score a higher amount of points than expected.

Stantial said there remains some caution with the upgrade and upside. DraftKings may have lost market share in the last quarter due to PENN Entertainment‘s (NASDAQ:PENN) ESPN Bet.

But the analyst sees ESPN Bet's easing on promotions helping DraftKings.

"We expect market share headwinds to ease in Jan/Feb, and hence opportunistically upgrade shares following the recent pullback,” Stantial adds.

While some people joined the sports betting sector through ESPN Bet, Stantial argues this could increase the overall market size. People may make the switch to DraftKings or FanDuel as "retention is driven primarily by betting product quality."

The analyst calls DraftKings and FanDuel "clear best-in-class" for the sector.

One potential item for investors to watch is Flutter Entertainment’s (OTC:PDYPY) listing on the New York Stock Exchange. Flutter, which is currently OTC, is the parent company of FanDuel.

"We've heard some investors call out risk of rotation from DraftKings into Flutter thereafter, arguing that DraftKings has benefited from scarcity value as the sole U.S. listed operator of-scale."

What Other Analysts Are Saying: On Friday, Exane BNP Paribas analyst Alistair Johnson downgraded shares of DraftKings from Neutral to Underperform and has a $28 price target.

Earlier this month, BMO Capital analyst Brian Pitz initiated shares with an Outperform rating and $43 price target.

"We see a vast opportunity as more states legalize, allowing DraftKings to dramatically expand its footprint and profitability," Pitz said.

Pitz expects the U.S. market for online sports betting and iGaming to surpass $100 billion if every state legalized it.

Needham analyst Bernie McTernan reiterated a Buy rating and $50 price target on the company in December.

DKNG Price Action: DraftKings shares are down 2% to $36.90 on Friday versus a 52-week trading range of $13.41 to $39.35.

Read Next: Sports Bettor Wins Nearly $500K On $5 Bet Thanks To 14 NFL Players Scoring Touchdowns: A Look At The Unlikely Winning Wager