Strong market share and growing opportunities in online sports betting could push Flutter Entertainment FLUT shares higher, according to Needham analyst Bernie McTernan, who initiated coverage with a Buy rating and a $270 price target on the Fanduel parent.
The Analyst Takeaways: With Flutter's dominant global scale, McTernan said it's time for investors to "add it to the bet slip" with the initiation of coverage on the stock during the 2024 NFL season.
"We see FLUT's leadership position in the US as an increasingly important earnings driver for the company, powering 25% global adj. EBITDA CAGR over the next three years," McTernan said.
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The total addressable market size of online sports betting in the U.S. could "continue to surprise to the upside," McTernan said. The U.S. drives nearly 75% of the asset value in Needham’s “SOTP (sum of the parts) and should be the significant focus for investors,” he added.
FanDuel, owned by Flutter, saw strong revenue and customer growth in the second quarter, McTernan added. With competitor DraftKings Inc DKNG, FanDuel has a near duopoly in the U.S. online sports betting market.
"Scale and commitment to product leadership from FanDuel and DKNG likely keeps the OSB market dominated by these two players,” he added.
A Needham survey revealed that sports bettors primarily use FanDuel and DraftKings.
"We think share can continue to ebb and flow between FanDuel and DKNG as we do not see a physical network effect in OSB meaning there is not a structural reason for dominant market share leader like digital marketplaces."
A Flutter Investor Day on Sept. 25 could provide more forecasts on the total addressable market size and EBITDA goals from the company, McTernan added.
"The US TAM continues to be larger than anticipated which should pay dividends for the operators that are able to consolidate market share. We see significant earnings power for the consolidated business if this thesis plays out."
McTernan said unless the market structure in the U.S. changes, it's "FanDuel and DKNG at the top and then everyone else."
FanDuel (37.8%) and DraftKings (34.8%) had a combined 73% market share in 2023. BetMGM ranks a distant third at 8.6% market share.
In the second quarter of 2024, FanDuel had market share of 37.3% with DraftKings at 37.0%. Both BetMGM and fourth-place Caesars had lower market share in the first two quarters of 2024 compared to 2023.
FLUT Price Action: Flutter stock trades at $231.94 versus a 52-week trading range of $174.03 to $234.54. Flutter stock is up 33% year-to-date in 2024.
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