DraftKings Analysts Stay Bullish Despite 18% Quarter Loss.

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DraftKings’ shares (DKNG) barely kept their heads above water today, with a close that was just under 1% lower. Despite these choppy waters, brimming with a significant loss of 18.29% in the last 90 days, sell-side analysts continue to sing bullish tunes about the DraftKings’ stock.

To accentuate the overall optimism, the iconic DraftKings billboard on Times Square, NYC, proudly displays the company’s bullish spirit. Analysts from Stifel have handpicked DraftKings’ stock as an exceptional investment for the second half of 2024. In a client note, Stifel’s Jeffrey Stantial rated the company as a sizzling ‘buy’ with a promising price target of $50. This indicates a surging 34.8% upside from the closing price today.

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Stantial sees the recent obstacles — such as the tax hike in Illinois, which the market had reacted nervously to — as already priced into the shares. He believes that DraftKings is poised to weather these headwinds and come out stronger, witnessing a steady growth driven by state reported GGR trends.

Illinois’ new online sports betting taxation plan which doubled tax rates for major operators like DraftKings and FanDuel parent Flutter Entertainment, from July 1, could have dealt a blow. But Stantial thinks DraftKing’s resilience has de-risked these headwinds enough to keep the market’s expectations in check.

Stifel also urges analysts and investors to keep a keen eye on DraftKings’ free cash flow when the second-quarter results are expected to be unveiled on August 1. The gaming operator has managed to turn around a decidedly negative free cash flow scenario in a three-quarter stride. The company nearly cut losses sevenfold, from a staggering $721.95 million in 2022 to a significantly improved $103.03 million last year.

The four years since becoming a publicly traded entity have been evolutionary for DraftKings. It is speculated that the company may start returning capital to shareholders, a sign of maturing free cash flow for the young firm. Stantial thinks that’s a real possibility.

Stantial hints that DraftKings might opt for a share buyback as their preferred method to return capital to investors rather than embarking on any large-scale mergers and acquisitions, or expanding internationally in the near term.

However, 2024 has proven to be a damp squib for state-level expansion of online sports betting and iGaming. But even this disappointment is thought to be priced into sports betting equities, especially for DraftKings which has been making promising strides.

Stantial says DraftKings has been steadily increasing market share — with user acquisition and monetization being key value drivers. April and May showed a year-over-year online sports betting handle growth surge of 24% and 29% in the U.S. Stantial also notes that many new DraftKings customers are casual bettors, a demographic that tilts towards lottery-style betting ensuring higher holds for operators. Although poised to be a trying year, DraftKings seem to be confident about leaving investors with a winning hand.