DraftKings Could Beat Revenue Estimates By 25% Over Next 4 Years: Morgan Stanley

Pure play sports betting company DraftKings Inc DKNG gets an upgrade on Wednesday based on the total addressable market size rising with additional states launching and legalizing sports betting and iGaming.

The DraftKings Analyst: Morgan Stanley's Thomas Allen upgraded DraftKings from Equal-Weight to Overweight and raises the price target from $39 to $60.

The DraftKings Takeaways: The total addressable market for sports betting and iGaming has improved and Allen is raising forecasts.

“While stay-at-home tailwinds likely helped, the strength in iGaming has extended well beyond the early casino closures, suggesting acquired customers will continue playing and sports betting revenues beat our 4Q expectations despite a weaker sports calendar,” Allen wrote in a note.

The analyst raises the total addressable market for sports betting and iGaming by 27% to $15 billion in 2025. The market was worth $3 billion in 2020, which was ahead of the analyst’s forecast of $2 billion.

Related Link: Michigan Enters Online Sports Betting Game With Barstool And DraftKings Ready To Roll

DraftKings stands to benefit from a large number of states that could legalize sports betting and/or iGaming in 2021. The analyst sees launches and approvals in Arizona, Connecticut, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Ohio, Oklahoma, South Dakota, Texas. New York and Ontario are also seen as catalysts with approvals.

Allen said DraftKings could beat revenue estimates for fiscal years 2022 to 2025 by 25% due to these catalysts. The fourth quarter is tracking 10% higher than consensus estimates as well.

“We also expect DKNG to start to talk about profitability in New Jersey, as FanDuel did, countering the bear thesis that the industry will never be profitable," Allen said. He has a bull case price target of $179.

DKNG Price Action: Shares of DraftKings are up 3.2% to $52.94 at publication time.