Barry Jonas of Truist initiated earnings coverage of FanDuel owner Flutter‘s stock at “buy” with a $330 target.
Despite risks like potential tax increases, competition and bad luck, Jonas sees “sizable” free cash flow coming from US growth and is bullish on FanDuel maintaining its “product-driven” sports betting lead.
Flutter moved its primary listing to the NYSE in May after the stock first listed in the US in January 2024. Since launching at $205, FLUT is up 36.9% to $280.59 at Friday‘s close.
Investors will watch the stock for the rest of the week with Flutter’s earnings call at 4:30 pm Tuesday.
Scale Helps Protect Flutter
Jonas sees Flutter as the company best positioned to handle increased taxes and other regulatory risks compared to any other US sportsbook operator. After all, it has absorbed such issues internationally before.
Two business segments, UK & Ireland and Australia, saw point of consumption taxes introduced over the last 10 years yet still saw EBITDA grow double digits.
The UK & Ireland saw EBITDA grow at a 12% compound annual growth rate between 2014 and 2021 while Australian EBITDA grew 38% from 2016 through 2021.
“We believe if the US market becomes increasingly unfavorable/less profitable for operators, FLUT has the benefit of being better diversified to weather any storms,” Jonas said.
FanDuel Or DraftKings?
Jonas likes both DraftKings and FanDuel, given that product parity with the rest of the industry is “still a longer-term vision for the challengers in this space.”
FanDuel has pulled away a little over the past year, though. It has led DraftKings in most key performance indicators, Jonas said, mostly due to its belief that more handle creates sustainable revenue growth.
FanDuel has also outpaced the market with product improvements, he said. According to 2024 first-half stats from HoldCrunch, FanDuel led all operators with a 12% gross revenue margin compared to 9% for DraftKings and a 7% average for other operators.
According to SensorTower, FanDuel has 13% more app downloads than DraftKings since January 2024.
Making The Bear, Base And Bull Case
Truist made its investment case with five different information points:
- Valuation. The valuation placed on 2026 EBITDA with bear at 15%, base at 15.5% and bull at 16%.
- Macroeconomic environment. The base case calls for stock appreciation despite the macroeconomic environment.
- Leadership position. The base case assumes a similar environment to now, while the bull case sees FanDuel growing its lead while also getting little to no competition from prediction markets.
- Rest of the world. Flutter owns podium positions in multiple international markets
- Navigating risks. Flutter would be on track for the bull case if it can grow despite regulatory risks and outside competition.
