On Wednesday, BMO Capital Markets maintained a positive outlook on DraftKings Inc. (NASDAQ: NASDAQ:DKNG), reiterating its Outperform rating and a consistent price target of $48.00. The firm's stance comes amidst potential challenges due to recent tax legislation in Illinois and the UK, which could present headwinds to DraftKings' financial performance.
The analyst at BMO Capital acknowledged the tax legislation as a short-term risk but suggested that higher taxes might speed up the digital shift in online sports betting and iGaming sectors.
In light of strong monthly active users (MAUs) and key performance indicators (KPIs), the analyst has revised the revenue estimates for the third quarter of 2024 and the full year 2024 upwards by approximately 3.5% and 1%, respectively. These new estimates now align with the consensus and DraftKings' guidance.
In terms of profitability, adjustments were made to the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) forecasts for the third and fourth quarters of 2024. The revision reflects a more accurate representation of the NFL promotion cycle's impact on the company's earnings. Despite these quarterly adjustments, the forecast for the full year 2024 adjusted EBITDA remains largely unchanged.
The analyst emphasized DraftKings' growth trajectory and potential for strong free cash flow generation as key factors underpinning the Outperform rating. The reiterated $48 price target reflects confidence in the company's ability to navigate the current tax environment and continue its expansion in the digital betting space.
In other recent news, DraftKings Inc. has been the subject of several significant developments. Susquehanna has reaffirmed its confidence in DraftKings, raising the stock's price target to $50 from the previous $48 while maintaining a Positive rating. This upgrade was driven by a strong Q3 outlook, underpinned by factors such as higher anticipated user growth and a favorable calendar shift.
This comes alongside DraftKings' recent agreement to pay a $200,000 penalty to the U.S. Securities and Exchange Commission (SEC) over charges of failure to disclose material non-public information equitably to all investors.
DraftKings has also reported a substantial 80% increase in new online sports betting and iGaming customers year-over-year, with a 26% rise in revenue, reaching a total of $1.104 billion. In addition, the company managed to cut its marketing costs by over 40% and announced a share repurchase program of up to $1 billion.
On the analyst front, JPMorgan (NYSE:JPM) lifted its price target for DraftKings to $54 from the previous $48, maintaining an Overweight rating. Needham, on the other hand, maintained its Buy rating and $60.00 stock price target for DraftKings, despite a revision in the company's adjusted EBITDA projections for the years 2025 and 2026.
Lastly, DraftKings maintained its Buy rating and $60.00 price target from Needham following promising sportsbook outcomes and strategic acquisitions, including the acquisition of Simplebet, which is expected to enhance its in-game betting offerings.
These developments highlight DraftKings' strategic positioning and operational milestones in the competitive online betting landscape.
InvestingPro Insights
Recent data from InvestingPro adds depth to BMO Capital's optimistic outlook on DraftKings. The company's revenue growth remains robust, with a 43.26% increase in the last twelve months as of Q2 2024, reaching $4.30 billion. This aligns with BMO's upward revision of revenue estimates and the InvestingPro Tip that analysts anticipate sales growth in the current year.
Despite the potential tax headwinds mentioned in the article, DraftKings' financial health appears stable. InvestingPro data shows the company operates with a moderate level of debt, which could provide flexibility in navigating regulatory changes. Additionally, an InvestingPro Tip suggests that net income is expected to grow this year, supporting BMO's positive stance on the company's profitability trajectory.
The market seems to share this optimism, with DraftKings' stock showing a 27.99% price return over the past year. However, investors should note that the stock trades at a high revenue valuation multiple, indicating high growth expectations are already priced in.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for DraftKings, providing a broader perspective on the company's financial outlook and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.