Analyst Likes DraftKings As Public Embraces Legal Sports Betting

The case for investing in providers of legalized gambling like DraftKings in the U.S. is based in part on encouraging trends elsewhere in the world, according to Canaccord Genuity.

DraftKings and SBTech were acquired by Diamond Eagle Acquisition Corporation DKNG, which merged into a new DraftKings entity.

The DraftKings Analyst

Michael Graham initiated coverage on the stock with a Buy rating and $25 price target.

The DraftKings Thesis

Graham said investors should look towards the United Kingdom to better understand the growth potential DraftKing faces in the U.S. as the public starts to "embrace" legalized sports betting. Most notably, online sports betting is around 2.5 times larger than in-person sports betting while activity per player is nearly five times larger.

So far, eight states have legalized sports betting in the U.S. which covers 13.6% of the U.S. population and this figure should rise to around 65% by 2026.

Graham said DraftKing's $3.3 billion reverse mergers with the blank-check company Diamond Eagle Acquisition created a well-funded public entity with more than $500 million in cash. In fact, the new company "bears the hallmarks" of an Internet disruptor as it targets a large online market where it benefits from positive network effects and minimal competitors.

The company also boasts around 650,000 paying players in its Daily Fantasy Sports business across 43 states and this represents a "fertile" cross-selling opportunity as legalization expands across the U.S., the analyst wrote.

Coupled with a national advertising campaign, the company should be able to grow revenue at a 26% compounded annual growth rate through 2026.

DKNG Price Action

Shares were trading higher by 1.8% at $21.38.

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Photo credit: Baishampayan Ghose, Flickr