Needham Sets $70 Price Target On DraftKings: 'This Is No Time To Get Hung Up On Valuation'

Online sports betting DraftKings Inc DKNG just got another bull.

The DraftKings Analyst: Needham analyst Brad Erickson initiated coverage on DraftKings with a Buy rating and a price target of $70.

The DraftKings Thesis: New states legalizing online sports betting/iGaming and technology are the two big reasons given by Erickson.

DraftKings has online sports betting in eight states and iGaming in three states. Several states like Michigan and Tennessee are expected to launch online sports betting before the end of the year.

Erickson thinks the state budget deficits stemming from COVID-19 acts as a catalyst for additional approvals.

“We view DKNG as one of the leading beneficiaries as online sports betting and gambling take off in the U.S. – an opportunity we size between $42 and $58 billion annually longer-term,” Erickson wrote in the note.

DraftKings’s strong presence in the online market and its ownership of SBTech stand out as a positive for Erickson. The company’s access to data creates a better user experience versus traditional brick and mortar casinos according to Erickson.

“The company actively uses a data-centric approach to customer acquisition with both operational and capital advantages versus competitors.”

The $70 price target is based on a 24 times multiple for 2023 enterprise value divided by revenue. Erickson sets a bull case of $100 with a multiple of 30 times on higher revenue and gaining a 30% to 35% market share.

“This is no time to get hung up on valuation," he wrote.

Benzinga’s Take: The $42 billion to $58 billion target for sports betting and iGaming by Needham is one of the loftier targets out there. Macquarie Research just put a $65 price target on DraftKings stating the company could hit $4.3 billion in revenue by 2030. That target came with the overall market hitting $33.7 billion.

Morgan Stanley downgraded both DraftKings and Penn National Gaming PENN in August on valuation concerns and the market estimates getting too large.

Rosenblatt Securities recently initiated coverage on Penn National and estimated the total sports betting and iGaming market to be worth $39 billion.

DKNG Price Action: Shares of DraftKings are up 3% to $60.44. Shares hit a new high of $61.98 early Thursday morning.