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DraftKings Stock Has Catalysts, But Shares Aren’t Cheap

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Posted on: April 24, 2023, 12:47h. 

Final up to date on: April 24, 2023, 02:02h.

It’s peeling again at the moment, becoming a member of the broader market to the draw back, however DraftKings (NASDAQ: DKNG) is on a scintillating run to start out 2023.

DraftKings
Staff at DraftKings headquarters. An analyst sees tailwinds for the inventory however cautions valuation is wealthy. (Picture: CNBC)

A ten.10% achieve over the previous week has shares of the gaming fairness larger by 88.30% yr up to now. Even with that mammoth achieve, tailwinds stay, however the valuation is stretched. That’s the decision from Financial institution of America analyst Shaun Kelley who highlighted DraftKings in a notice to purchasers on Monday.

We calculate DKNG’s Q1 income barely outpaced the US market at +11% quarter-over-quarter on market share positive factors, helped by power in new states (Ohio and Massachusetts),” wrote Kelley. “Nevertheless, our internet gaming income (NGR) estimate is down 15% quarter-over-quarter as a consequence of promotions, new state launches, and every day fantasy sports activities (DFS) seasonality. We imagine larger maintain, enhancing product combine, and shorter payback intervals for brand spanking new clients are all tailwinds for DKNG.”

The Boston-based firm delivers first-quarter outcomes on Might 4.

DraftKings Earnings Outlook

DraftKings beforehand supplied monetary steerage for 2023, and a few analysts imagine the corporate may break even on the premise of earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) this yr whereas producing constructive earnings per share (EPS) sooner or later in 2024.

Trying towards the upcoming first-quarter report, Wall Road expects DraftKings to put up an EPS lack of 84 cents on the premise of typically accepted accounting rules (GAAP) whereas notching income of $689.42 million. Over the previous 90 days, two analysts boosted EPS forecasts on the gaming firm whereas 9 downwardly revised estimates.

Whereas the sportsbook operator has but to put up a worthwhile quarter, it has established a precedent for beating topline estimates. Analysts estimate DraftKings’ income will develop a mean of twenty-two% yearly by 2026.

The gaming firm’s beforehand revealed steerage referred to as for 2023 gross sales of $2.85 billion to $3.05 billion and an EBITDA lack of $350 million to $450 million. An apparent catalyst for the inventory can be for the operator to lift full-year income steerage whereas decreasing its loss forecast following the first-quarter monetary report.

DraftKings Inventory Not Low cost

As is usually the case with rising development shares following scorching runs to the upside, valuations look rather less interesting. Financial institution of America’s Kelley famous that’s the case at the moment with DraftKings.

Revisiting valuation, DKNG trades at 12.9x stabilized 2025 EBITDA (utilizing 20% margins and our estimated 2025 income), which is in-line with precise EBITDA multiples for Flutter and excessive development know-how shares,” added the analyst. “Whereas we expect DKNG’s execution has turned and on-line gaming has larger income development vs. excessive tech comps, this valuation already feels prefer it components in substantial execution and important upside to consensus.”

Flutter is the mother or father firm of FanDuel, the most important on-line sportsbook operator within the US as measured by market share. Kelley famous DraftKings’ market share doubtless elevated by 0.15% to 26.6% within the first three months of this yr.

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