DraftKings Inc. has experienced a dip in performance compared to the S&P 500 since late July. However, according to analyst Joseph Greff from JPMorgan, this presents a lucrative buying opportunity.
Upholding Potential in an Attractive Sector
Greff upgraded DraftKings (DKNG) shares from neutral to overweight on Tuesday. He emphasizes that the company operates within an appealing sector, offering attractive prospects for both same-store growth and expansion into new markets. Greff also notes that DraftKings benefits from an overall improvement in controlling operating expenses within the industry.
Positive Momentum and Growth
Despite a recent pullback, DraftKings’ stock has surged by 140% this year, showcasing its resilience and potential. In premarket action on Tuesday, shares were up by more than 3%.
Greff predicts that several positive financial trends will contribute to DraftKings’ success. He expects the company to continue experiencing higher “hold rates,” representing the money retained from bets. This encouraging dynamic is partially fueled by the popularity of parlay betting.
Enhanced Loyalty and Cost Efficiency
Moreover, Greff highlights that DraftKings is likely benefiting from improved customer loyalty resulting from brand recognition, trust, and product enhancements. This positive trend could contribute to reduced expenses associated with acquiring new customers.
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In conclusion, Greff’s analysis presents a compelling case for investing in DraftKings Inc. Its position within a promising sector, coupled with positive financial trends and enhanced customer loyalty, makes it an appealing prospect for investors seeking growth opportunities. Despite recent setbacks, DraftKings remains a resilient force in the market.
DraftKings Positioned to Thrive in a Competitive Online Sports Betting Market
Analyst Greff predicts a decline in customer acquisition costs as DraftKings achieves national scale and reduces sales and marketing expenses. This prompted him to raise his price target on DraftKings shares from $26 to $37.
Despite facing stiff competition in the online sports betting industry, Greff remains optimistic about DraftKings’ stronghold. He believes that the company’s strong assets including its product, scale, and brand will enable it to successfully compete against new entrants like PENN’s ESPNBet and Fanatics, just as it has done against Caesars.
Greff’s analysis suggests that DraftKings shares are trading at reasonable multiples. He forecasts an enterprise value to revenue multiple of 2.0 based on his 2026 estimates, and an enterprise value to earnings before interest, taxes, depreciation, and amortization (Ebitda) multiple of 9.5. The analyst asserts that these valuations are not overly rich, considering DraftKings’ current solid fundamentals and its potential for future improvement in Ebitda trajectory.
According to FactSet, 33 analysts cover DraftKings shares. Of these, 23 have buy-equivalent ratings and 10 have hold-equivalent ratings. The average price target among these analysts is $36.12.
In summary, DraftKings’ positive market positioning, the potential for cost reduction, and favorable analyst ratings indicate a promising future for the company.
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