DraftKings Sees Price Upgrade From Analyst On 'Path To Positive EBITDA,' Penn's Price Adjustment Down Over Regionals Concern

Sports betting company DraftKings Inc DKNG recently reported first-quarter financial results. Now, an analyst is sizing up the earnings report from DraftKings and other operators in the sports betting space.

• The Analyst Ratings: Morgan Stanley analyst Stephen Grambling has an Overweight rating on DraftKings Inc and raises the price target from $23 to $25.
• Grambling has an Equal Weight rating on Penn Entertainment PENN and lowers the price target from $31 to $28.
• The analyst has an Equal Weight rating on Wynn Resorts WYNN and raises the price target from $102 to $109.
• He also maintains Overweight ratings on Las Vegas Sands Corp LVS and Red Rock Resorts RRR.
• Related Link: Exclusive: DraftKings CEO Sizes Up Sports Betting Competition 

The Analyst's Takeaways: Grambling said that casino and sports betting stocks posted better results in the first quarter, but gaming stocks are underperforming the market.

• “We came out of 1Q earnings more constructive on digital/Macau, while our views on Vegas/regionals are largely unchanged given smaller beats and uncertain longer-term sustainability,” Grambling said.
• With the uncertainties, Grambling is staying selective on which stocks to recommend for outperformance.
• “Digital gains credibility as profitability outlook improving. Digital segments were largely in-line with consensus expectations.”
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• Grambling said online sports betting operators are pulling back on promotions and providing a better “path to positive EBITDA.”
• “While DKNG has put up two consecutive solid quarters, we continue to hear bears pushing back -with conversations now focused around valuation and what gets the stock moving from here.”
• The analyst raises estimates for DraftKings revenue and EBITDA after the quarter and updated guidance from the company.
• “We continue to believe in DKNG and the broader industry’s inflection towards profitability. As existing sports betting states continue to mature and outpace the new state investments we expect those contribution profits to waterfall towards positive EBITDA by 4Q at the latest.”
• Grambling said DraftKings is set up for a favorable 2024 to exceed estimates.
• The analyst said trends for regional casinos are moving down, creating uncertainty for several stocks and leading to the price target change for Penn Entertainment.
• “While Penn has largely been able to maintain flattish top-line trends in the Regions, we remain cautious around regional-focused operators and believe any signs of consumer spending degradation will show up in Regional gaming GGR first.”
• While regional casinos could struggle, Grambling has more optimism for those companies with high exposure to Las Vegas.
• “Las Vegas celebration continues. While 1Q was Vegas operators easiest comp of the year, Strip performance either met or exceeded already high expectations. All operators also called out strong forward bookings and stable trends.”

For more on the sports betting landscape and what could be next for popular betting segments and legislation, tune in to the Benzinga Sports Betting Titans virtual event on May 24.

Now Read: EXCLUSIVE: DraftKings Benefits From Non-NFL Sports Growth, Eyes Horse Racing And Election Betting Expansion