DraftKings (DKNG) Shares Rally After Morgan Stanley Upgrade to Overweight, Analyst Sees 'Too Big an Opportunity to Ignore'

January 26, 2022 9:45 AM EST
Get Alerts DKNG Hot Sheet
Price: $14.24 +0.78%

Rating Summary:
    21 Buy, 13 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 14 | Down: 24 | New: 13
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Shares of DraftKings (NASDAQ: DKNG) are up nearly 10% today after Morgan Stanley analyst Thomas Allen upgraded to Overweight with the stock down around 75% off its 52-week high.

The analyst expects the gaming company to benefit from a “very large” New York sports betting/iGaming market. DKNG is seen as one of the share winners, while the investor sentiment on the other side is at “an all-time low”. Overall, the analyst sees an opportunity to invest for the long-term.

“NY results released Friday remind us how big and how concentrated an opportunity US sports betting / iGaming is. NY released results for its first 8 days of online sports betting on Friday. As we highlighted, the implied market revenue runrate is $1.9B, well above our prior $600m 2022 forecast and $1B 2025 forecast. AZ was the last large state to launch and similarly, annualized revenue is tracking at ~$400m vs. our pre- market launch 2022 forecast of $219m. While only 4 operators were live in the first 8 days of the NY market, it still showed how the leading players dominate, with DraftKings, FanDuel, and CZR at 98% / 99% of handle / GGR, with sub-scale RSI at just 2% / 1%. In AZ, the top 5 operators have had ~95% market share to-date, in a 9 operator market,” Allen said in a client note.

While Allen acknowledges “near- to medium-term profit concerns, he also reminds investors that “one should not ignore that DKNG is a leading market share player in what will be a very large profitable market.”

Including today’s rally, DKNG stock is still down nearly 25% YTD.

By Senad Karaahmetovic | [email protected]

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Morgan Stanley, Senad Karaahmetovic