An analyst is sizing up the opportunity in DraftKings Inc DKNG after the company reported third quarter financial results.
The note comes ahead of DraftKings' analyst day, which will be held on Nov. 14.
The DraftKings Analyst: Bank of America analyst Shaun C. Kelley has a Buy rating and a price target of $40.
Related Link: DraftKings Can Fight Off Sports Betting Competition, Analysts Say After Q3 Earnings
The Analyst Takeaways: After a strong run in the share price in 2023, Kelley questions if the "king of 2023" can reign until 2026.
Kelley said the analyst day will likely focus on medium-term revenue goals and profit goals for 2026 or 2027. The event could also highlight expectations for mature states and market share assumptions.
"We believe DKNG could provide 2026 targets of $6.1 to $6.5 billion/$1.1 to $1.3 billion in revenue and EBITDA," Kelley said.
The analyst said DraftKings could raise long-term revenue guidance by +30% with higher market share and a larger total addressable market.
"TAM expansion and strong existing state growth is driving upside across the market and esp. for DKNG as they improve their product and take share."
The analyst said the third quarter highlighted DraftKings' cost leverage as the company scales and lowers marketing spend.
Going forward, free cash flow could be the new EBITDA, Kelley said.
"Only 18 months ago there was a concern of a capital raise for DKNG, but we think the next chapter of DKNG's story may be their strong free cash flow profile."
DKNG Price Action: DraftKings shares are down 0.2% to $35.82 on Wednesday, versus a 52-week trading range of $10.69 to $36.37. Shares of DraftKings are up 223% year-to-date in 2023.
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