Multiple analysts raised their DraftKings stock target prices despite the company lowering 2024 guidance based on some unlucky NFL results.
DraftKings slashed its expected adjusted EBITDA for 2024 last week on what some have called an unprecedented run of unlucky NFL betting results for sportsbooks.
Those five weeks of favorites winning hit DraftKings to the tune of $175 million, though the company was able to offset nearly a third of that with marketing and promotional changes.
Despite the significant swing, investors did not show any sign of their belief in the stock waning. DKNG closed the night of its earnings at $38.98 and closed Monday at $43.21, up 10.9% since earnings.
Macquarie: ‘Don’t hold back’
The important part of DraftKings’ third quarter earnings is that management reiterated its adjusted EBITDA guidance of $900 million to $1 billion for next year, Chad Beynon of Macquarie explained.
The company also expects $850 million in free cash flow next year. Based on 2026 estimates, that makes DKNG “one of the best bargains” among high-growth companies with a free cash flow yield of about 7%, Beynon said.
Beynon raised his target to $51 and maintained his outperform rating on the stock, titling the note “Don’t hold back from this winner.”
“DKNG is a leader in the fast-growing US Online Gaming industry,” the note said in its investment thesis section. “We believe the company, which has transitioned to profitability, is well positioned for double-digit revenue growth.”
Not all recommend DraftKings stock
While unlucky hold happens in gaming, it should not lead to a run on the stock, especially when it leads to a downward revision, Carlo Santarelli of Deutsche Bank said.
He raised his target price to $33 but maintained his hold rating on the stock. Santarelli has never “enjoyed recommending” stocks based on narrative, he said.
“In our view, however, the stock action is less about DKNG and its individual performance, and how that performance lends to the credibility of 2025 guidance, and more about the relative outlook,” Santarelli said.
“Simply, if you are a gaming investor, or even a broader consumer investor, regardless of what happens fundamentally for DKNG in 2025, there simply is a scarcity of names that have prospects for even modest growth in 2025, no less the type of growth DKNG will undoubtedly exhibit.”
Potential for ‘beat and raise’ to return
DraftKings was on a strong run of earnings reports that saw the company beat expectations, which led to raised guidance. There is potential to return to that kind of earnings report cadence, Jeffrey Stantial of Stifel said.
He listed four core value drivers to get the company back there:
- Improved product and potential market share upside, specifically around its new NBA offerings.
- Conservatism in its fourth quarter and fiscal year guidance concerning user acquisition investment, which has remained high but with good returns on value.
- Seeing those recently acquired users ramping up to historic cohort levels.
- Uplift from Jackpocket cross-sell. That business acquired first-time depositors at a rate 80% better than DraftKings could in 2023.
Stantial maintained his $48 target and buy rating.
