Why This Analyst Sees 'Slight Hope' For DraftKings In 2020

DraftKings Inc DKNG shares traded lower on Thursday after hopes for legalized sports betting in the state of Massachusetts were dealt a heavy blow.

What Happened? The Massachusetts House had previously passed an economic stimulus bill that included provisions for legalizing sports betting in the state. However, the state Senate rejected the sports gambling amendments in their version of the $455 million bill passed on Wednesday night.

Why It’s Important: The state of New Jersey reported $423 million in iGaming revenue in the first half of 2020, up 94% from a year ago. DraftKings is the biggest beneficiary of that surge in popularity given the company is nearly a pure play in U.S. sports gambling and online gaming.

Given the success story of sports gambling in New Jersey and other states, legalization in Massachusetts could be a positive catalyst for DraftKings.

See Also: Draft Kings 'The Clearest Beneficiary' Of Very Strong New Jersey iGaming Numbers

While Wednesday’s vote was a blow for DraftKings, Oppenheimer analyst Jed Kelly said there’s still hope Massachusetts could revisit a standalone gambling bill in the near future. Certain lawmakers have been pushing to extend the current formal session beyond its typical July 31 deadline, which could give the state a couple of additional months to negotiate a new online gaming bill.

“We highlight that Governor Baker is a proponent of legalized sports betting and two of MA's neighboring states (RI/NH) both offer mobile wagering, therefore we believe MA will eventually legalize sports wagering; however, the timing remains uncertain,” Kelly wrote in a note.

Kelly said there is still a “slight hope” that Massachusetts will legalize sports gambling before the end of 2020, which would be incrementally positive for DraftKings stock.

Oppenheimer has an Outperform rating and $46 price target for DraftKings.

Benzinga’s Take: DraftKings shares have nearly tripled so far in 2020, but the price action is understandable given the string iGaming and online sports trends so far this year. State and local governments under pressure to generate tax revenue during these difficult economic conditions may see sports gambling legalization as an easy way to generate some much-needed income from very little investment.

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