DraftKings Inc. (DKNG) a 'Buy' as Illinois Mobile Registration Awakens - Benchmark
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Benchmark's analyst Mike Hickey reiterated his 'Buy' rating on DraftKings (NASDAQ: DKNG) stock after Illinois Gov. Pritzker reinstated his order allowing for remote online sport betting (OSB) registration.
Hickey believes that the Illinois market has a +$700M market opportunity as the 5th largest state in the U.S. He adds that there are only 2 live mobile OSB operators in Illinois, including DKNG.
“The waiver on physical registration for mobile game play goes through Sept. 19th. DKNG has their mobile skin from Casino Queen that is approximately a 5-hour drive from Chicago Metro area, which is where 75% of the state’s population resides,” Hickey wrote in a note to clients.
“We expect reported F3Q20 total revenue to increase 69% to $126M (consensus: $132M) from $75M in F2Q20. We expect reported F3Q20 gross income of $59M or 47% margin (consensus: $62M or 47% margin) compared to F2Q20 gross margin of 53%. We expect reported F3Q20 EBITDA of -$142M (consensus: -$74M) compared to F2Q20 EBITDA of -$60M”.
The firm reported a cash balance of $1.24 billion in cash. The price target of $45 per share is calculated by estimating a normalized revenue of $827 over FY21/FY22 period and multiplying it by 20x multiple.
When net cash is added to the formula, Hickey maintains a “Buy” rating with a TP of $45 per share, a premium of 25% on the current market price.
Shares of DraftKings Inc. closed at $35.81 yesterday.
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