A new analyst has initiated coverage on DraftKings Inc DKNG, one of the leading companies in the sports betting sector.
Here's a look at what the analyst said would help the company with growth and why another analyst raised the price target on DraftKings.
Mizuho on DraftKings: With underappreciated leverage in the sports betting sector, Mizuho analyst Ben Chaiken initiated the stock with a Buy rating and a $58 price target.
The analyst saw three keys to the company for future growth. Revenue growth from existing and new states added, better operating leverage and free cash flow generation were three key items highlighted by Chaiken.
"We believe the earnings power of DKNG is underappreciated, with multiple levers to drive EBITDA above and beyond any incremental state launches," Chaiken said.
The analyst said the company was lowering its promotional expenses and benefits from states maturing and promotional expenses representing a lower percentage overall.
"Implicitly this means as promotional expense comes down, COGS remains unchanged, and the model experiences dramatic operating leverage."
The analyst said that until recently, DraftKings was viewed as an "unprofitable tech company" by investors.
"We project DKNG can become one of the more compelling FCF stories in our coverage, converting ~90% of EBITDA to FCF."
Related Link: DraftKings Q4 Earnings Highlights: Revenue Miss, EPS Beat, Jackpocket Digital Lottery Acquisition, Guidance Increase And More
Bank of America on DraftKings: Along with Mizuho's initiation, another DraftKings analyst is bullish on the sports betting company.
Bank of America analyst Shaun C. Kelley had a Buy rating on DraftKings and raised the price target from $50 to $54.
The price target raise comes after the analyst hosted a dinner with DraftKings' company management and investors.
The analyst saw the sports betting company focusing on its Jackpocket acquisition and AI initiatives to help with revenue generation and cost savings.
"Given DraftKings proven track record with cross sell from daily fantasy to online sports betting, and OSB to iGaming, we expect a similar playbook for Jackpocket into both iGaming and OSB," Kelley said.
Kelley said management's tone and gaming data pointed to DraftKings online sports betting and iGaming businesses as healthy. The company also seemed unaffected by new entrants in the sports betting space, the analyst added.
"DraftKings is setting themselves apart from peers with their balanced focus on both marketing and product and technology."
The analyst's price target increase comes with DraftKings being one of the "high-quality growth stocks."
DKNG Price Action: DraftKings shares are up 3.20% to $48.84 on Tuesday versus a 52-week trading range of $17.33 to $49.27. The new 52-week high happened intraday Tuesday. Shares of DraftKings are up over 170% in the last year.
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