On Wednesday, Stifel adjusted its price target for DraftKings Inc. (NASDAQ:DKNG) shares to $50, a decrease from the previous $51, while maintaining a Buy rating. The change comes in response to recent legislative developments in Illinois.
The Illinois Senate passed the fiscal year 2025 budget, which includes a new graduated tax rate system for online sports betting (OSB). This proposal is now waiting for approval from the House, with expectations for it to pass and take effect on July 1.
The new tax structure was anticipated by investors, but its progressive nature could have a disproportionate effect on companies like DraftKings and FanDuel.
Despite this, Stifel's analysis indicates that the impact on DraftKings' future earnings estimates and discounted cash flow (DCF) calculations should be minimal.
However, the announcement has led to concerns about the possibility of similar tax proposals in other states, contributing to the stock's sell-off on Wednesday.
Stifel acknowledges the increasing regulatory challenges facing the industry but believes the market reaction may have exaggerated the risk of regulatory 'contagion.'
The firm interprets the tax changes as potentially positive for the momentum of internet casino (iCasino) expansion due to the efforts to increase tax revenues. Stifel sees the weakness in DraftKings' share price during the first trading week as an opportunity for investors to buy.
The firm has updated its financial model to incorporate the proposed tax changes in Illinois, leading to the revised price target.
Despite the slight decrease in the target price, Stifel reiterates its Buy rating for DraftKings, suggesting confidence in the company's long-term prospects despite short-term regulatory hurdles.
InvestingPro Insights
As DraftKings Inc. (NASDAQ:DKNG) navigates the evolving legislative landscape, real-time data and expert analysis offer valuable insights for investors. With a current market capitalization of $17.71 billion, the company reflects significant investor interest. Impressively, revenue growth over the last twelve months as of Q1 2024 stands at 57.0%, indicating robust sales performance. Despite a challenging operating income margin of -12.85%, analysts remain optimistic, with expectations of net income growth this year, as reflected in the upward revisions of earnings by four analysts for the upcoming period.
InvestingPro Tips highlight that while DraftKings operates with a moderate level of debt and has not been profitable over the last twelve months, there is anticipation of sales growth in the current year. Moreover, the stock's high return over the last year of 56.59% showcases its potential for significant gains. For investors seeking a deeper dive into DraftKings' financials and future outlook, there are an additional 15 InvestingPro Tips available, which can be explored further for strategic decision-making. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
The recent legislative developments in Illinois are just one factor in the broader analysis of DraftKings' potential. By considering these real-time metrics and expert insights, investors can make more informed decisions in the context of the company's long-term trajectory.
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